EXHIBIT 13
BOK FINANCIAL CORPORATION
EXHIBIT 13
ANNUAL REPORT TO SHAREHOLDERS
TABLE OF CONTENTS
-----------------
Consolidated Selected Financial Data 5
Management's Assessment of Operations and
Financial Condition 6
Selected Quarterly Financial Data 11
Report of Management on Financial Statements 21
Report of Independent Auditors 21
Consolidated Financial Statements 22
Notes to Consolidated Financial Statements 27
Annual Financial Summary 44
Quarterly Financial Summary 46
Appendix A 49
1995 Annual Report
BOK FINANCIAL
CORPORATION
1 Management Letter
5 Management's Assessment of Operations and Financial Condition
21 Report of Management on Financial Statements
21 Report of Independent Auditors
22 Consolidated Financial Statements
48 Shareholder and Corporate Information
FINANCIAL HIGHLIGHTS
(Dollars In Thousands)
1995 1994 1993/1/
--------------------------------------
FOR THE YEARS ENDED DECEMBER 31
Income before cumulative effect of
changes in accounting for income taxes $ 49,205 $ 45,065 $ 37,902
Net income 49,205 45,065 39,472
Earnings per share:
Primary 2.33 2.12 1.80/2/
Fully-diluted 2.12 1.93 1.63/2/
- -----------------------------------------------------------------------------------------------------
Return on average assets 1.22% 1.27% 1.27%/3/
Return on average equity 18.07 19.92 20.07/2/
AS OF DECEMBER 31
Loans, net of reserves $2,156,081 $1,805,782 $1,641,294
Assets 4,221,918 3,898,276 3,129,041
Deposits 2,937,709 2,629,574 2,610,927
Shareholders' equity 301,565 236,902 213,943
Nonperforming assets 42,066 31,881 23,452
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Tier 1 capital ratio 9.91% 9.14% 9.07%
Total capital ratio 11.17 11.19 11.49
Leverage ratio 6.55 5.64 5.76
Shareholders' equity to total assets 7.14 6.08 6.84
Reserve for loan losses to 99.02 137.76 233.92
nonperforming loans
Reserve for loan losses to loans /3/ 1.80 2.12 2.50
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/1/ Restated for poolings-of-interests which occurred in 1994 and 1993.
/2/ Excludes the cumulative effect of change in accounting for income taxes in
1993.
/3/ Excludes residential mortgage loans held for sale which are carried at the
lower of aggregate cost or market value.
TO OUR SHAREHOLDERS,
CUSTOMERS, EMPLOYEES AND FRIENDS
Your company continued to make progress in a number of areas during 1995.
We are pleased to report on this performance, and discuss with you some of our
plans for the future. Net income for the year was $49.2 million, or $2.12 per
share. This is an increase of 9.5 percent over 1994 per share earnings. Assets
increased 8.3 percent to $4.2 billion, led by loan growth of 19 percent--as
year-end loans reached a new high at $2.2 billion. The growth in loans was
widely based, across most commercial lines and throughout the consumer area.
(Earnings per Share graph appears here. See appendix A, graph I.)
Asset quality continued to be very good. Our proportion of down-graded
loans relative to capital is near the lowest level reached in more than twenty
years. Our net interest margin was under considerable pressure throughout 1995.
During 1993 and 1994, the differential between medium-term rates and short-term
funding costs--a major source of profitability in banking--had been much higher
than normal. This "yield curve slope" flattened materially in 1995, causing our
margin to narrow from 3.94 percent in 1994 to 3.39 percent in 1995. We expect
this situation to improve during 1996, but do not foresee a return to the wide
spreads that characterized the prior several years. The overall reduction in
interest rates during the year did have the positive effect of causing a $97
million increase in the value of our securities portfolio.
Growth in our funding sources for the past several years has been largely
from acquisitions and so-called "borrowed funds" from stable sources such as the
Federal Home Loan Bank and secured funding of specific transactions in the
repurchase agreement market. During 1995, we launched an aggressive program to
build deposits through innovative pricing and internal incentive plans. As a
result of this effort, during the last six months of the year, total deposits
increased $246 million, with much of the growth from time deposits, principally
jumbo CD's. We anticipate this trend to continue in 1996, as we better match the
growth of our loan and deposit portfolios.
(Funding graph appears here. See appendix A, graph II.)
We are especially pleased with progress in several of our business
activities. As the result of acquisitions of servicing and growth in its
originated servicing portfolio, BancOklahoma Mortgage's operating revenues grew
16.9 percent. TransFund, the state's leading ATM network, grew 16.3 percent.
BancOklahoma Trust experienced a 13.1 percent increase in its revenue. We
anticipate a continuation of higher-than-normal growth in our fee-based services
during 1996.
Nineteen ninety-six will be a year of opportunity and challenge. Continuing
consolidation in banking provides a great opportunity to further increase our
market share in Oklahoma and build a stronger presence in Arkansas and Texas.
Our growth and profitability from these opportunities will be offset to some
degree by several changes in expenses, including loan loss provision, deposit
1
insurance, taxes and mortgage servicing valuations. Loan growth over the past
several years requires that we resume a provision for loan losses, in spite of
high credit quality. During 1992-94, our acquisitions included approximately
$740 million in thrift deposits. Federal legislation could assess banks which
acquired thrift deposits as part of the restoration of reserves of the Savings
Association Insurance Fund ("SAIF"). While the amount of any such "SAIF
assessment" is highly conjectural, we could experience a charge during 1996 of
some $5 million to $6 million, followed by a substantial reduction in ongoing
expenses for deposit insurance. The sustained profitability we have experienced
during the past several years has allowed us to exhaust the tax carryforwards
accumulated during the 1980's and, as a result, we will now reflect a normal tax
rate. Finally, the industry-wide adoption of an accounting standard which
requires the recognition of servicing rights on certain originated mortgage
loans also requires a quarterly assessment of the fair value of those rights in
a manner which will increase earnings volatility.
(Loans graph appears here. See appendix A, graph III.)
Consumer Services
(Commercial Loans graph appears here. See appendix A, graph IV.)
In 1995, we introduced, with tremendous success, the 24-Hour ExpressBank.
ExpressBank radically changed our telephone customer service unit into a 24-hour
a day, 365 days a year sales center, offering the full range of deposit and loan
services at the total control of the customer--making "bankers' hours" a phrase
of the past for our customers. In 1996, we will further enhance convenience by
introducing home-based personal computer banking.
In 1995, we opened several additional offices in our Oklahoma consumer
division. We also opened a fourth location in northwest Arkansas, enhancing our
ability to deliver a full range of sophisticated banking services through a
community banking presence in that market. We now have a network of 10
supermarket branches, bringing unrivaled convenience to our customers at a lower
cost to us than through traditional freestanding branches. In1996, we plan to
open one freestanding branch and three supermarket branches, and will continue
to consolidate offices whose markets overlap.
(Real Estate Loans graph appears here. See appendix A, graph V.)
Community Banking
The growth of our Community banking effort has been dramatic. This division's
average loans for 1995 were up 20.1 percent, to a year-end high of $254 million.
Our objective of delivering "large bank services with a community bank feel" is
not an advertising phrase--it is a reality, and is paying dividends. We have
been particularly impressed with our success in northwest Arkansas, where
Citizens Bank, acquired in late 1994, is showing growth and is opening a dynamic
market to us.
2
Specialty Lending Expertise
We continue to build on our strategy of penetrating the Dallas middle-
market energy business. Our loan commitments in this market doubled and now
exceed $60 million. We anticipate additional growth in north Texas as additional
independent oil and gas producers see the advantages of dealing with a
responsive, knowledgeable and committed energy bank.
Additionally, we started adding higher return business in a new subsidiary,
BOK Capital Services, which is involved in mezzanine finance and "niche"
equipment leasing. Financing commitments in this entity now total $25 million
and we expect continued growth as we seek attractive opportunities.
(Operating Revenue graph appears here. See appendix A, graph VI.)
Board of Directors
One of our consistent objectives has been to have the highest quality
representation on our Board. In that vein, we were delighted to welcome several
additions to our Board during 1995. FRANK A. MCPHERSON, Chairman of the Board
and Chief Executive Officer of Kerr-McGee Corp., joined us in July, adding to
our strong representation from the Oklahoma City area. NANCY J. DAVIES, a
prominent community leader from Enid and a person who has distinguished herself
by her contributions to higher education throughout Oklahoma, joined our Board
in September. RALPH S. CUNNINGHAM, President and Chief Executive Officer of
Citgo Petroleum Corp., joined the Board in October. Shortly after the end of
1995, W. WAYNE ALLEN, Chief Executive Officer of Phillips Petroleum, rejoined
Bank of Oklahoma after completing his service on the Board of the Federal
Reserve Bank of Kansas City, a position that required his resignation from our
Board in December 1992.
With these additions, we have further strengthened a Board of Directors
which is clearly the strongest in the state. We are proud to include within our
ranks the chief executive officers from Oklahoma's five largest companies, two
of its major utilities, a number of highly successful entrepreneurs from a
variety of industries, and prominent leaders in social, civic and community
activities.
3
As Oklahoma's largest home-owned and operated bank, we will continue our
mission to fuel the growth of our state's economy and improve the economic well-
being of our citizens.
As always. We welcome your comments and your suggestions.
George B. Kaiser Stanley A. Lybarger Wayne D. Stone
Chairman of the Board President and Chief President,
Executive Officer Oklahoma City
Personal Note from George Kaiser
Soon after my initial involvement in the management of Bank of Oklahoma, I
determined that our President, Stan Lybarger, was eminently qualified to serve
as CEO. He has the combination of strategic vision and "nuts and bolts"
attention to detail that have allowed us to improve our market position and
profitability over the past five years. Accordingly, during 1995, the Board of
Directors asked Stan to assume the role of CEO as of January 1, 1996. As Board
Chairman, I will continue to be actively involved in the Company, working with
the Board and Stan in developing and applying our business strategies.
4
Table 1 Consolidated Selected Financial Data
(Dollars In Thousands Except Share Data)
BOK FINANCIAL BOk
-------------------------------------------------------------------- ------------
Inception Jan.1-June 6
1995 1994 1993/2/ 1992/2/ through 1991
1991/1/,/2/
-------------------------------------------------------------------- ------------
SELECTED FINANCIAL DATA
For the year:
Interest revenue $ 275,441 $ 223,058 $ 181,354 $ 155,745 $ 106,121 $ 56,652
Interest expense 160,177 104,055 74,586 67,003 57,439 34,358
Net interest revenue 115,264 119,003 106,768 88,742 48,682 22,294
Provision for loan losses 231 195 3,376 5,555 4,005 1,500
Income before extraordinary item and cumulative
effect of change in accounting principle 49,205 45,065 37,902 29,786 11,494 2,870
Net income 49,205 45,065 39,472 29,786 11,494 4,391
Period-end:
Loans, net of reserve 2,156,081 1,805,782 1,641,294 1,445,144 1,207,759
Assets 4,221,918 3,898,276 3,129,041 2,965,331 2,372,360
Deposits 2,937,709 2,629,574 2,610,927 2,588,570 2,054,172
Subordinated debenture - 23,000 23,000 23,000 -
Shareholders' equity 301,565 236,902 213,943 163,636 127,886
Nonperforming assets 42,066 31,881 23,452 37,600 49,866
PROFITABILITY STATISTICS
Per share (based on average equivalent shares):
Primary earnings:
Income before cumulative effect of change in
accounting for income taxes $ 2.33 $ 2.12 $ 1.80 $ 1.51 $ .99
Net income 2.33 2.12 1.88 1.51 .99
Fully diluted earnings:
Income before cumulative effect of change in
accounting for income taxes 2.12 1.93 1.63 1.33 .88
Net income 2.12 1.93 1.70 1.33 .88
Percentages (based on daily averages):
Return on average assets/4/ 1.22% 1.27% 1.27% 1.29% .86%
Return on average shareholders' equity/4/ 18.07 19.92 20.07 20.76 15.82
Average shareholders' equity to average assets 6.77 6.37 6.31 6.21 5.41
COMMON STOCK PERFORMANCE AND EXISTING SHAREHOLDER STATISTICS
Per Share:
Book value:
Common shareholders' equity $ 14.02 $ 10.93 $ 9.60 $ 7.36 $ 5.67
Market price: December 31 Bid 19.50 20.00 24.75 21.50 13.00
Market range - High bid 23.50 25.00 25.50 21.50 18.75
- Low bid 18.50 19.00 17.50 8.00 6.25
Other statistics:
Common shareholders at December 31 1,676 1,748 1,924 2,077 1,919
SELECTED BALANCE SHEET STATISTICS
Period-end:
Tier 1 capital ratio 9.91% 9.14% 9.07% 8.14% 8.02%
Total capital ratio 11.17 11.19 11.49 10.73 9.46
Leverage ratio 6.55 5.64 5.76 5.84 5.33
Reserve for loan losses to nonperforming loans 99.02 137.76 233.92 132.76 107.76
Reserve for loan losses to loans/3/ 1.80 2.12 2.50 2.50 3.23
MISCELLANEOUS (AT DECEMBER 31)
Number of employees (FTE) 1,842 1,801 1,741 1,557 1,426
Number of banking locations 66 63 55 54 34
Number of TransFund locations 549 520 614 495 465
Mortgage loan servicing portfolio $5,363,175 $5,080,859 $3,483,993 $2,125,071 $1,916,981
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/1/ Includes the accounts of BOk for seven months since its acquisition by BOK
Financial.
/2/ Restated for poolings-of-interests which occurred in 1994 and 1993.
/3/ Excludes residential mortgage loans held for sale which are carried at the
lower of aggregate cost or market value.
/4/ Excludes the cumulative effect of change in accounting for income taxes in
1993.
5
Management's Assessment of
Operations and Financial Condition
BOK Financial Corporation ("BOK Financial") is a bank holding
company which offers full service banking in Oklahoma and Northwest
Arkansas and trust services in North Texas. BOK Financial's principal
subsidiaries are Bank of Oklahoma, N.A. ("BOk") and Citizens Bank
of Northwest Arkansas, N.A. ("CBNWA").
Statement of Earnings Analysis
Summary of Performance
BOK Financial recorded net income of $49.2 million for 1995 compared to
$45.1 million for 1994. Fully diluted earnings per common share were $2.12 for
1995 and $1.93 for 1994. Returns on average assets and average equity were 1.22%
and 18.07%, respectively, for 1995 compared to 1.27% and 19.92%, respectively,
for 1994.
The increase in net income for 1995 was due to a $16.8 million increase in
other operating revenue, partially offset by a $8.7 million increase in
operating expenses. Additionally, net interest revenue decreased $3.7 million
from 1994.
Net income for the fourth quarter of 1995 was $12.7 million or $0.54 per
fully diluted common share compared to $11.7 million or $0.50 per fully diluted
common share for the same quarter in 1994. The primary sources of increased
quarterly earnings are consistent with the full year: increased other operating
revenue partially offset by increased operating expenses and decreased net
interest revenue.
BOK Financial's net income for 1993 was $39.5 million. In 1993, returns on
average assets and average equity were 1.27% and 20.07%, respectively, and fully
diluted earnings per share were $1.63, excluding the cumulative effect of a
change in accounting for income taxes.
Net Interest Revenue
Net interest revenue, on a tax-equivalent basis, totaled $122.3 million in
1995 compared to $125.1 million in 1994. This reduction in net interest revenue
was due to a decreased net interest margin partially offset by increased average
earning assets. Increased market interest rates, which affect BOK Financial's
interest expense more quickly than its interest revenue, caused a $14.6 million
decrease in 1995's net interest revenue. Average earning assets increased $426
million, with loans having increased $294 million and securities having
increased $159 million. This increase in earning assets was funded principally
by $302 million increase in borrowed funds. The net effect of this increase in
average earning assets was additional net interest revenue of $11.8 million. The
effects of the changes in principal volumes and interest rates on net interest
revenue by asset and liability type are presented in Table 2 on the following
page.
6
Table 2 Volume/Rate Analysis
(In Thousands) 1995/1994 1994/1993
---------------------------------------- --------------------------------
Change Due To/1/ Change Due To/1/
------------------------- ------------------------
Change Volume Yield/Rate Change Volume Yield/Rate
---------------------------------------- --------------------------------
Tax-equivalent interest
revenue:
Securities $13,663 $ 9,907 $ 3,756 $23,157 $22,077 $ 1,080
Trading securities 16 (10) 26 (17) (39) 22
Loans 40,637 24,922 15,715 21,330 12,847 8,483
Funds sold (1,012) (1,413) 401 215 (299) 514
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Total 53,304 33,406 19,898 44,685 34,586 10,099
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Interest expense:
Transaction deposits 1,197 (151) 1,348 831 1,023 (192)
Money market deposits 2,017 (1,485) 3,502 (20) (663) 643
Savings deposits (565) (383) (182) 287 247 40
Time deposits 23,949 7,809 16,140 4,799 382 4,417
Borrowed funds 30,552 16,842 13,710 23,572 17,591 5,981
Subordinated debenture (1,028) (1,038) 10 - - -
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Total 56,122 21,594 34,528 29,469 18,580 10,889
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Tax-equivalent net interest revenue (2,818) $11,812 $(14,630) 15,216 $16,006 $ (790)
Change in tax-equivalent adjustment (921) 2,981
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest revenue $(3,739) $12,235
- ------------------------------------------------------------------------------------------------------------------------------------
4th Qtr 1995/4th Qtr 1994
-------------------------------------------
Change Due To/1/
---------------------------
Change Volume Yield/Rate
-------------------------------------------
Tax-equivalent interest
revenue:
Securities $ 161 $ 263 $ (102)
Trading securities 35 2 33
Loans 8,983 6,920 2,063
Funds sold 9 (4) 13
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Total 9,188 7,181 2,007
- -----------------------------------------------------------------------------------------------------
Interest expense:
Transaction deposits 87 (103) 190
Money market deposits 608 (173) 781
Savings deposits (288) (190) (98)
Time deposits 6,463 3,383 3,080
Borrowed funds 2,683 1,621 1,062
Subordinated debenture (346) (346) -
- -----------------------------------------------------------------------------------------------------
Total 9,207 4,192 5,015
- -----------------------------------------------------------------------------------------------------
Tax-equivalent net interest revenue (19) $ 2,989 $ (3,008)
Change in tax-equivalent adjustment 17
- -----------------------------------------------------------------------------------------------------
Net interest revenue $ (2)
- -----------------------------------------------------------------------------------------------------
/1/ Changes attributable to both volume and yield/rate are allocated to both
volume and yield/rate on an equal basis.
Net interest margin, the ratio of net interest revenue to average earning
assets, decreased from 3.94% in 1994 to 3.39% in 1995. This decrease was due
primarily to the repricing of interest-bearing liabilities, deposits and
borrowed funds, to higher rates which prevailed throughout 1995. BOK Financial's
interest-bearing liabilities react to changes in interest rates more quickly
than its earning assets. In periods of rising interest rates, net interest
margin and ultimately net interest revenue may decline. Periods of falling
interest rates may have the opposite effect. Management employs various
strategies to control this interest rate risk. These strategies are discussed
more fully in the subsequent section "Interest Rate Sensitivity and Liquidity".
Tax equivalent net interest revenue for the fourth quarter of 1995 was
$31.2 million, unchanged from the fourth quarter of 1994. The increase in
interest revenue, due to increased average earning assets, was offset by an
increase in interest expense due to higher interest rates paid on average
interest-bearing liabilities.
Net interest revenue on a tax-equivalent basis for 1994 increased $15.2
million from 1993's total of $109.9 million. This increase was due to a $517
million increase in average earning assets. During 1994, management initiated a
strategy to more fully utilize BOK Financial's capital by borrowing funds to
purchase securities.
7
Other Operating Revenue
Other operating revenue, which consists primarily of fee income on products
and services, increased $12.5 million or 16.4%, excluding securities gains and
losses and a $1.2 million gain on the sale of one branch in 1995.
Service fees on deposits were $21.2 million for 1995, a $454 thousand or
2.2% increase over 1994. Competitive pressures have restricted the ability to
increase these fees. However, fees generated by the TransFund ATM network and
bankcards increased $986 thousand or 16.3% and $708 thousand or 29.1%,
respectively, due to a higher volume of activity in 1995.
Other operating revenue for the fourth quarter of 1995 was $24.0 million
compared to $20.1 million in 1994. The increase was due primarily to an increase
in mortgage banking revenue and trust fees.
Table 3 Other Operating Revenue
(In Thousands) BOK FINANCIAL BOk
----------------------------------------------------------- ---------------
Inception Jan.1-June 6
1995 1994 1993 1992/2/ through 1991/1/ 1991
----------------------------------------------------------- ---------------
Brokerage and trading revenue $ 6,046 $ 5,517 $ 7,107 $ 3,827 $ 1,171 $ 415
TransFund network revenue 7,025 6,039 5,811 5,163 2,963 2,025
Securities gains (losses), net 1,174 (1,868) 1,896 136 685 114
Trust fees and commissions 19,363 17,117 16,824 15,007 7,672 5,896
Service charges and fees on deposit accounts 21,152 20,698 20,825 17,704 9,467 4,984
Mortgage banking revenue 20,336 15,868 12,564 11,895 6,458 1,728
Other revenue 16,050 10,993 11,583 9,511 5,794 3,226
- ---------------------------------------------------------------------------------------------------------------------------------
Total $91,146 $74,364 $76,610 $63,243 $34,210 $18,388
- ---------------------------------------------------------------------------------------------------------------------------------
/1/ Includes the accounts of BOk for seven months since its acquisition by BOK
Financial.
Other operating revenue totaled $74.4 million in 1994 compared to $76.6
million in 1993. Excluding gains and losses on securities transactions, other
operating revenue increased $1.5 million or 2.0% due primarily to increased
mortgage banking revenue, partially offset by lower brokerage and trading
revenue. The increase in mortgage banking revenue was due to increased loan
servicing while the decrease in brokerage and trading revenue was due to
concerns over interest rates and higher loan demand among the traditional users
of these products limiting activities during 1994.
Other operating revenue includes fees, commissions and certain net
marketing gains and losses from trust and mortgage banking activities. While
trust and mortgage banking activities are integral parts of BOK Financial's
industry segment, commercial banking, their revenue and expenses are
attributable primarily to off-balance-sheet assets. The effects of trust and
mortgage banking activities on BOK Financial's operations are discussed below.
Trust
BOK Financial provides a wide range of trust services through its
subsidiaries, BancOklahoma Trust Company in Oklahoma and Alliance Trust Company,
N.A. in Texas. At December 31, 1995, trust assets with an aggregate market value
of approximately $7.6 billion were subject to various fiduciary arrangements,
compared to $6.0 billion at December 31, 1994. Approximately $1.0 billion of
this increase was due to new business, while the remainder was due primarily to
market value increases.
A summary of both direct and internally allocated revenues and expenses
from trust operations are (in thousands):
1995 1994 1993
-----------------------------
Total revenue $21,723 $18,609 $18,044
Personnel expense 8,930 7,936 7,666
Other expense 5,325 4,332 4,993
- -------------------------------------------------------
Total expense 14,255 12,268 12,659
- -------------------------------------------------------
Operating profit $ 7,468 $ 6,341 $ 5,385
- -------------------------------------------------------
8
Mortgage Banking Activities
BOK Financial engages in mortgage banking activities through its
subsidiary, BancOklahoma Mortgage Corp. ("BOMC"). These activities include the
origination, marketing and servicing of mortgage loans. Notes 1 and 7 to the
Consolidated Financial Statements provide additional information regarding
mortgage banking activities.
Origination and marketing activities included net losses of $1.5 million in
1995 compared to net losses of $2.4 million in 1994. The decrease in net losses
is primarily due to the adoption of Statement of Financial Accounting Standards
No. 122, "Accounting for Mortgage Servicing Rights" ("FAS 122"). FAS 122
requires that the fair value of servicing rights related to loans originated for
sale in the secondary market be capitalized as a separate asset. Previously,
only purchased mortgage loan servicing rights could be capitalized. Excluding
the effect of FAS 122, net losses on originating and marketing activities
increased due to continued competitive pressures on loan pricing and fees. Total
mortgage loan production for 1995 was $533 million compared to $517 million in
1994.
Commitments to originate mortgage loans subject BOK Financial to both
credit risk and interest rate risk. Credit risk is managed through underwriting
policies and procedures, and interest rate risk is partially hedged through
forward sales contracts.
Consolidated mortgage loan servicing revenue for 1995 was $21.9 million, a
$3.6 million or 20.0% increase over 1994. This increase was the result of a full
year's fees on servicing rights purchased during 1994. BOMC owned the rights to
service mortgage loans totaling $5.4 billion at December 31, 1995, including
$253 million serviced for BOk, compared to $5.1 billion at December 31, 1994.
In addition to the capitalization of servicing rights on originated
mortgage loans, FAS 122 requires that a valuation allowance be provided for the
difference between the amortized historical cost and fair value of all
capitalized mortgage servicing rights stratified by predominant risk
characteristics. BOK Financial's policy prior to the adoption of FAS 122 was to
directly write down capitalized mortgage loan servicing rights whenever the
undiscounted amount of net cash flows was less than the total amortized
historical cost on a portfolio basis. The adoption of FAS 122 will result in
more volatile earnings as the fair value of mortgage servicing rights react to
changes in interest rates.
A summary of both direct and internally allocated revenue and expenses from
mortgage banking activities are (in thousands):
1995 1994 1993
-------------------------------
Servicing revenue $21,452 $17,473 $10,442
Origination and secondary marketing
revenue, net 1,251 863 6,777
Other revenue 2,813 2,369 2,399
- -----------------------------------------------------------------------
Total revenue 25,516 20,705 19,618
- -----------------------------------------------------------------------
Personnel expense 4,148 3,498 3,085
Amortization of mortgage servicing
rights 8,667 7,468 5,755
Other expense 11,184 8,929/1/ 6,099
- -----------------------------------------------------------------------
Total expense 23,999 19,895 14,939
- -----------------------------------------------------------------------
Operating profit $ 1,517 $ 810 $ 4,679
- -----------------------------------------------------------------------
/1/ Excludes charges of $5.2 million for losses on certain purchased mortgage
loans. See Other Operating Expense discussion.
Other Operating Expense
Other operating expense totaled $142.2 million for 1995 compared to $133.5
million for 1994, an increase of $8.7 million or 6.5%. Operating expense for
1994 included a $5.2 million loss on certain mortgage loans purchased from
Lenders Mortgage Services, Inc. ("Lenders"). Excluding this loss and net gains
on sales of repossessed assets, operating expenses increased $12.5 million or
9.4%.
Personnel expense increased $4.2 million or 6.6% compared to 1994 due to
higher compensation costs. Approximately $747 thousand of this increase was due
to personnel expense at banks purchased in 1994 and $704 thousand was due to
higher incentive compensation which varies with revenue produced. The remainder
of the increase was primarily due to additional staffing in support of expanded
products and services.
9
Net occupancy, equipment and data processing expense for 1995 increased
$3.7 million or 15.7% compared to 1994. Data processing expenses increased $1.8
million due to a higher volume of transactions processed while occupancy and
equipment expenses increased due to a full year's expenses on 1994 acquisitions
and a full year's depreciation on investments in upgraded technology.
Mortgage banking costs increased $1.8 million or 16.4% compared to 1994 due
primarily to a $1.1 million increase in the amortization of capitalized mortgage
servicing rights. Additionally, expenses related to the servicing of government
guaranteed loans increased $863 thousand.
FDIC and other insurance decreased $2.0 million or 31.0% compared to 1994
due to a lowering of premiums on deposit insurance from 23 basis points (.23% of
deposits) in 1994 to 3 basis points in mid-1995. These premiums are applicable
to deposits insured by the FDIC's Bank Insurance Fund. At December 31, 1995,
BOKF had deposits totaling $739 million which are insured by the FDIC's Savings
Association Insurance Fund ("SAIF"). These deposits represent earlier
acquisitions of thrift deposits. Premiums on SAIF insured deposits remained at
23 basis points for 1995. Legislation is pending in Congress which will require
banks and savings associations to pay a one-time assessment on all SAIF-insured
deposits. Estimates of the cost of this assessment range from 66 basis points to
90 basis points. The ultimate amount and timing of this assessment is subject to
the Federal budget reconciliation process. Management will accrue for any
resulting assessment once it becomes reasonably estimable.
Table 4 Other Operating Expense
(In Thousands)
BOK FINANCIAL BOk
---------------------------------------------------------------------------------------- ---------------
Inception Jan.1-June 6
1995 1994 1993 1992 through 1991/1/ 1991
---------------------------------------------------------------------------------------- ---------------
Personnel expense $ 67,298 $ 63,111 $ 60,891 $ 51,053 $28,865 $16,099
Business promotion 6,039 6,213 5,535 3,584 2,596 1,152
Professional fees and services 5,898 4,664 5,385 3,657 3,166 2,009
Net occupancy, equipment and data
processing expense 27,324 23,619 25,161 19,248 11,728 7,081
FDIC and other insurance 4,406 6,386 6,171 5,313 3,060 1,926
Printing, postage and supplies 6,340 5,415 4,876 4,678 2,904 1,398
Net (gains) losses and operating expenses on
repossessed assets (3,098) (4,575) (2,792) (125) 1,512 1,418
Amortization of intangible assets 5,992 5,597 4,133 2,840 544 218
Mortgage banking costs 12,529 10,764 7,590 6,142 2,058 719
Other expense 9,478 12,281 8,911 8,892 4,822 2,664
- ------------------------------------------------------------------------------------------------------------------------------------
Total $142,206 $133,475 $125,861 $105,282 $61,255 $34,684
- ------------------------------------------------------------------------------------------------------------------------------------
/1/ Includes the accounts of BOk for seven months since its acquisition by BOK
Financial.
Other operating expense for the fourth quarter of 1995 totaled $36.9
million, compared to $35.0 million in the fourth quarter of 1994. This increase
is due to the same factors which caused the full year increase in other
operating expenses, higher personnel and occupancy, equipment and data
processing expenses, partially offset by lower FDIC insurance expense.
The efficiency ratio, the ratio of other operating expenses, including net
gains on real estate sales, to tax-equivalent net interest revenue and other
operating revenue, excluding securities gains and losses, increased to 68.5%
during 1995 compared to 66.0% in 1994. This increase reflects the decline in net
interest revenue during 1995 and the growth in operating expenses in support of
new or expanded operating revenue sources. Management expects the efficiency
ratio to improve in 1996 due to improvements in both net interest revenue and
other operating revenue and due to containment of the increase in operating
expenses.
Other operating expenses for 1994 increased $7.6 million from 1993 due
primarily to a $5.2 million loss on the lenders mortgage loans and higher costs
associated with 1994 and 1993 acquisitions of other financial institutions and
mortgage loan servicing rights.
10
Income Taxes
Income tax expense was $14.8 million, $14.6 million and $16.2 million for
1995, 1994 and 1993, respectively, representing 23%, 25% and 30%, respectively,
of estimated book taxable income. Tax expense currently payable totaled $17.0
million in 1995, compared to $13.7 million in 1994 and $13.1 million in 1993.
The difference between tax expense currently payable and total tax expense
represents taxes which may not be paid until future periods. The decrease in
income tax expense as a percent of estimated book taxable income reflects the
recognition of certain deferred tax assets which previously had been limited.
Management expects to recognize additional deferred tax assets in 1996 as
limitations expire. See Note 10 to the Consolidated Financial Statements
for a detailed discussion.
Table 5 Selected Quarterly Financial Data
(In Thousands Except Per Share Data) FOURTH THIRD SECOND FIRST
-------------------------------------------------
1995
-------------------------------------------------
Interest revenue $70,579 $69,686 $69,228 $ 65,948
Interest expense 41,132 40,631 40,869 37,545
- ---------------------------------------------------------------------------------------------------------------
Net interest revenue 29,447 29,055 28,359 28,403
Provision for loan losses 176 15 40 -
- ---------------------------------------------------------------------------------------------------------------
Net interest revenue after provision 29,271 29,040 28,319 28,403
for loan losses
Other operating revenue 23,951 22,237 21,631 22,153
Securities gains, net - 948 226 -
Other operating expense 36,852 35,682 34,567 35,105
- ---------------------------------------------------------------------------------------------------------------
Income before taxes 16,370 16,543 15,609 15,451
Income taxes 3,707 4,050 3,527 3,484
- ---------------------------------------------------------------------------------------------------------------
Net income $12,663 $12,493 $12,082 $ 11,967
- ---------------------------------------------------------------------------------------------------------------
Earnings Per Share:
Primary $.60 $.59 $.57 $.57
- ---------------------------------------------------------------------------------------------------------------
Fully Diluted .54 .54 .52 .52
- ---------------------------------------------------------------------------------------------------------------
Average Shares:
Primary 20,506 20,523 20,489 20,471
- ---------------------------------------------------------------------------------------------------------------
Fully Diluted 23,237 23,255 23,228 23,205
- ---------------------------------------------------------------------------------------------------------------
1994
-------------------------------------------------
Interest revenue $61,374 $56,785 $54,516 $ 50,383
Interest expense 31,925 26,933 24,494 20,703
- ---------------------------------------------------------------------------------------------------------------
Net interest revenue 29,449 29,852 30,022 29,680
Provision for loan losses 135 - 35 25
- ---------------------------------------------------------------------------------------------------------------
Net interest revenue after provision 29,314 29,852 29,987 29,655
for loan losses
Other operating revenue 20,072 18,952 17,767 19,441
Securities gains (losses), net - (104) (1,766) 2
Other operating expense 35,022 33,218 30,630 34,605
- ---------------------------------------------------------------------------------------------------------------
Income before taxes 14,364 15,482 15,358 14,493
Income taxes 2,626 4,092 4,079 3,835
- ---------------------------------------------------------------------------------------------------------------
Net income $11,738 $11,390 $11,279 $10,658
- ---------------------------------------------------------------------------------------------------------------
Earnings Per Share:
Primary $.55 $.54 $.53 $.50
- ---------------------------------------------------------------------------------------------------------------
Fully Diluted .50 .49 .48 .46
- ---------------------------------------------------------------------------------------------------------------
Average Shares:
Primary 20,506 20,519 20,507 20,531
- ---------------------------------------------------------------------------------------------------------------
Fully Diluted 23,238 23,244 23,239 23,263
- ---------------------------------------------------------------------------------------------------------------
11
BOK FINANCIAL CORPORATION
Balance Sheet Analysis
Securities Portfolio
Securities are identified as either investment or available for sale based
upon various factors, including asset/liability management strategies, liquidity
and profitability objectives, and regulatory requirements. Investment securities
are carried at cost, adjusted for amortization of premiums or accretion of
discounts. Amortization or accretion of mortgage-backed securities is
periodically adjusted for estimated prepayments. Available for sale securities
are those which may be sold prior to maturity based upon asset/liability
management decisions. Securities identified as available for sale are carried at
fair value. Unrealized gains or losses, less applicable deferred taxes, are
recorded in Shareholders' Equity.
Table 6 presents the book values and fair values of BOK financial's
securities portfolio at December 31, 1995, 1994 and 1993. Additional information
regarding the securities portfolio is presented in Note 4 to the Consolidated
Financial Statements.
The amortized cost of BOK Financial's total securities portfolio decreased
$66 million during 1995. Increased loan demand and inadequate spreads between
securities and funding sources with similar maturities precluded any significant
additional securities investments. The interest rate environment which caused
the previously discussed decrease in net interest revenue also caused the
aggregate unrealized loss in BOK Financial's securities portfolio to decrease by
$97 million.
Effective December 20, 1995, BOK Financial adopted the provisions of a
Financial Accounting Standards Board special report on Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities" ("FAS 115"), which affects the securities portfolio. This
report permitted a one-time reclassification of securities. BOK Financial
reclassified $789 million of mortgage-backed and municipal securities to
available for sale in response to the more restrictive interpretations of FAS
115 included in this special report.
Net gains on securities sales during 1995 were primarily the result of
transactions in equity securities of another financial institution. These
transactions were designed to take advantage of increased activity in this
market segment.
Table 6 Securities
(In Thousands) DECEMBER 31,
1995 1994 1993
---------------------------------------------------------------------
BOOK FAIR Book Fair Book Fair
VALUE VALUE Value Value Value Value
---------------------------------------------------------------------
Investment:
U.S. Treasury $ 716 $ 721 $ 1,224 $ 1,211 $ 10,898 $ 11,110
Municipal and other tax-exempt 95,907 97,628 244,411 231,338 151,749 152,635
Mortgage-backed securities:
U.S. agencies 78,832 79,777 694,086 637,586 308,338 309,668
Other - - 9,825 9,625 26,891 26,672
- ----------------------------------------------------------------------------------------------------------
Total mortgage-backed securities 78,832 79,777 703,911 647,211 335,229 336,340
- ----------------------------------------------------------------------------------------------------------
Other debt securities 3,666 3,660 7,781 7,451 9,752 9,815
Equity securities and mutual funds - - - - 12 12
- ----------------------------------------------------------------------------------------------------------
Total $ 179,121 $ 181,786 $957,327 $887,211 $507,640 $509,912
- ----------------------------------------------------------------------------------------------------------
AMORTIZED FAIR Amortized Fair Amortized Fair
COST VALUE Cost Value Cost Value
---------------------------------------------------------------------
Available for sale:
U.S. Treasury $ 221,201 $ 222,478 $261,544 $255,347 $236,526 $239,452
Municipal and other tax-exempt 165,709 166,855 - - 5,609 5,959
Mortgage-backed securities:
U.S. agencies 941,020 934,433 374,078 352,169 179,366 179,678
Other 8,154 8,011 - - - -
- ----------------------------------------------------------------------------------------------------------
Total mortgage-backed securities 949,174 942,444 374,078 352,169 179,366 179,678
- ----------------------------------------------------------------------------------------------------------
Other debt securities 250 98 - - - -
Equity securities and mutual funds 34,145 34,786 22,726 22,726 16,306 16,306
- ----------------------------------------------------------------------------------------------------------
Total $1,370,479 $1,366,661 $658,348 $630,242 $437,807 $441,395
- ----------------------------------------------------------------------------------------------------------
12
Loans
During 1995, loans increased $350 million or 19%, continuing an upward
trend in loan volumes which began in the second quarter of 1991. This increase
was the result of continued strength in the Oklahoma economy and management's
efforts to capitalize on this strength. Commercial real estate loans increased
$128 million or 27%, and commercial loans increased $115 million or 15%.
The composition of the loan portfolio remained relatively constant during
1995 as the year's growth was distributed across most segments of the portfolio.
Commercial loans totaled $861 million or 39% of the portfolio, compared to 40%
in 1994. Commercial real estate loans totaled $599 million or 27% at December
31, 1995.
Substantially all of the commercial and consumer loans, and approximately
74% of the residential mortgage loans (excluding loans held for sale), are to
businesses and individuals in Oklahoma or Northwest Arkansas. This geographic
concentration subjects the loan portfolio to the general economic conditions
within this area. Notable segments within the commercial loan portfolio are
presented in Table 7. Commercial real estate loans are secured primarily by
properties located in the Tulsa or Oklahoma City, Oklahoma metropolitan areas.
The major portions of these properties are multifamily residences, $139 million;
retail facilities, $65 million; office buildings, $43 million; hotels, $41
million; and medical/nursing facilities, $39 million.
Table 7 LOANS
(In Thousands) DECEMBER 31,
----------------------------------------------------------------------
1995 1994 1993 1992 1991
----------------------------------------------------------------------
Commercial:
Energy $ 159,887 $ 162,767 $ 161,273 $ 137,619 $ 103,679
Manufacturing 136,701 106,104 99,464 89,015 55,870
Wholesale/retail 143,941 95,021 81,207 88,537 84,037
Agriculture 86,733 82,527 69,315 61,186 62,204
Loans for purchasing or carrying 7,963 9,718 13,249 27,975 24,753
securities
Other commercial and industrial 325,839 289,929 268,028 276,672 254,330
Commercial real estate:
Construction and land development 148,217 106,692 93,310 81,022 107,016
Other real estate loans 450,385 363,600 293,122 292,768 228,116
Residential mortgage:
Secured by 1-4 family residential 436,816 373,389 254,505 213,201 168,151
properties
Residential mortgages held for sale 72,412 40,909 189,786 78,970 60,438
Consumer 225,474 213,397 155,296 133,279 97,516
- ---------------------------------------------------------------------------------------------------------------------
Total $2,194,368 $1,844,053 $1,678,555 $1,480,244 $1,246,110
- ---------------------------------------------------------------------------------------------------------------------
13
BOK FINANCIAL CORPORATION
BOK Financial monitors loan performance on a portfolio and individual loan
basis. Nonperforming loans are reviewed at least quarterly and are discussed
subsequently under the caption "Nonperforming Assets". The loan review process
involves evaluating the creditworthiness of customers and their ability, based
upon current and anticipated economic conditions, to meet future principal and
interest payments. Loans may be identified which possess more than the normal
amount of risk due to deterioration in the financial condition of the borrower
or the value of the collateral. Because the borrowers are performing in
accordance with the original terms of the loan agreements and no loss of
principal or interest is anticipated, such loans are not included in the
nonperforming assets totals. These loans are assigned to various risk categories
in order to focus management's attention on the loans with higher risk of loss.
At December 31, 1995, loans totaling $42 million were assigned to the
substandard risk category, and loans totaling $40 million were assigned to the
special mention category. These are compared to $36 million and $55 million,
respectively, at December 31, 1994.
Table 8 Loan Maturity and Interest Rate
Sensitivity on December 31, 1995
(In Thousands) Remaining Maturities of Selected Loans
--------------------------------------------
Total Within 1 Year 1-5 Years After 5 Years
-----------------------------------------------------------------
Loan maturity:
Commercial $ 861,064 $478,581 $332,677 $ 49,806
Commercial real estate 598,602 88,295 371,026 139,281
- -----------------------------------------------------------------------------------------------------------------
Total $1,459,666 $566,876 $703,703 $189,087
- -----------------------------------------------------------------------------------------------------------------
Interest rate sensitivity for selected
loans with:
Predetermined interest rates $ 302,012 $ 51,863 $154,630 $ 95,519
Floating or adjustable interest rates 1,157,654 515,013 549,073 93,568
- -----------------------------------------------------------------------------------------------------------------
Total $1,459,666 $566,876 $703,703 $189,087
- -----------------------------------------------------------------------------------------------------------------
14
Summary of Loan Loss Experience
The reserve for loan losses, which is available to absorb losses inherent
in the loan portfolio, totaled $38 million at December 31, 1995 and 1994. The
reserve was 1.80% and 2.12% of total loans, excluding loans held for sale, at
December 31, 1995 and 1994, respectively. Losses on loans held for sale,
principally residential mortgage loans accumulated for placement in securitized
pools, are charged to earnings through adjustment in carrying value to the lower
of cost or market value in accordance with accounting standards applicable to
mortgage banking. Table 9 presents statistical information regarding the reserve
for loan losses for the past five years.
Table 9 Summary of Loan Loss Experience
(Dollars In Thousands) BOK Financial BOk
-------------------------------------------------------------------------------
Inception January 1 -
1995 1994 1993 1992 through 1991/1/ June 6, 1991
-------------------------------------------------------------------------------
Beginning balance $38,271 $37,261 $35,100 $38,351 $ 2,162 $44,003
Loans charged-off:
Commercial 753 1,112 4,089 6,174 1,218 2,404
Commercial real estate 171 227 1,195 4,223 3,245 2,994
Residential mortgage 190 553 548 495 427 2,077
Consumer 2,874 1,345 690 639 539 220
- -----------------------------------------------------------------------------------------------------------------------
Total 3,988 3,237 6,522 11,531 5,429 7,695
- -----------------------------------------------------------------------------------------------------------------------
Recoveries of loans
previously charged-off:
Commercial 1,579 1,366 2,204 616 563 2,203
Commercial real estate 987 972 828 823 271 150
Residential mortgage 373 157 151 175 22 67
Consumer 834 602 482 447 304 225
- -----------------------------------------------------------------------------------------------------------------------
Total 3,773 3,097 3,665 2,061 1,160 2,645
- -----------------------------------------------------------------------------------------------------------------------
Net loans charged-off 215 140 2,857 9,470 4,269 5,050
Provision for loan losses 231 195 3,376 5,555 4,005 1,500
Purchase accounting
adjustment relating to
change of control of BOk - - - - - (4,000)
Additions due to
acquisitions - 955 1,642 664 36,453 -
- -----------------------------------------------------------------------------------------------------------------------
Ending balance $38,287 $38,271 $37,261 $35,100 $38,351 $36,453
- -----------------------------------------------------------------------------------------------------------------------
Reserve to loans
outstanding at year-end/2/ 1.80% 2.12% 2.50% 2.50% 3.23%
Net loan losses to average
loans/3/ .01 .01 .18 .71 .86
Provision for loan losses
to average loans/3/ .01 .01 .22 .41 .51
Charge-off coverage/3,4/ 229.93X 323.29x 15.00x 3.74x 2.30x
Recoveries to gross
charge-offs/3/ 94.61% 95.68% 56.19% 17.87% 28.99%
Reserve as a multiple of
net charge-offs/3/ 178.08X 273.36x 13.04x 3.71x 4.12x
- -----------------------------------------------------------------------------------------------------------------------
PROBLEM LOANS
- -----------------------------------------------------------------------------------------------------------------------
Loans past due (90 days) $ 9,379 $ 7,667 $ 5,482 $ 1,379 $ 1,802
Nonaccrual 29,288 20,114 9,124 23,611 31,886
Renegotiated - - 1,323 1,448 1,901
- -----------------------------------------------------------------------------------------------------------------------
Total $38,667 $27,781 $15,929 $26,438 $35,589
- -----------------------------------------------------------------------------------------------------------------------
Foregone interest on
nonaccrual loans $ 2,928 $ 1,392 $ 1,238 $ 2,163 $ 1,797 $ 1,378
- -----------------------------------------------------------------------------------------------------------------------
/1/ Includes the accounts of BOk for seven months since its acquisition by BOK
Financial.
/2/ Excludes residential mortgage loans held for sale which are carried at the
lower of aggregate cost or market value.
/3/ For 1991, combines the Jan. 1 - June 6 period with the June 7 - Dec. 31
period.
/4/ Net income plus provision for loan losses as a multiple of net charge-offs.
15
BOK FINANCIAL CORPORATION
The adequacy of the reserve for loan losses is assessed by management based
upon an evaluation of the current risk characteristics of the loan portfolio
including current economic conditions, historical experience, collateral
valuation, changes in the composition of the portfolio and other relevant
factors. A provision for loan losses is charged against earnings in amounts
necessary to maintain the adequacy of the reserve for loan losses. These
provisions totaled $0.2 million for 1995 and 1994, and $3.4 million for 1993.
Management believes that the reserve for loan losses was adequate for each
period presented based upon all relevant factors. It is expected that continued
growth in the loan portfolio and moderation of economic activity will require an
increase in the reserve for loan losses during 1996.
Table 10 presents management's allocation of the year-end reserve for loan
losses for the past five years. The changes in the various allocations reflect
the changing composition of the loan portfolio and the changing economic
environment in BOK Financial's market area. In addition to reserves allocated to
specific loans or categories of loans, reserves are maintained for other
relevant factors such as national and local economic conditions and the nature
and volume of the loan portfolio.
Table 10 Loan Loss Reserve Allocation
(Dollars in Thousands)
December 31,
-----------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
-----------------------------------------------------------------------------------------------------
% OF % of % of % of % of
RESERVE LOANS Reserve Loans/1/ Reserve Loans/1/ Reserve Loans/1/ Reserve Loans/1/
-----------------------------------------------------------------------------------------------------
Loan Category:
Commercial $25,646 40.58 $23,633 41.38 $20,344 46.52 $19,784 48.60 $14,277 49.33
Commercial real estate 3,774 28.21 2,524 26.08 2,755 25.96 5,876 26.68 8,009 28.27
Residential mortgage 638 20.59 556 20.71 620 17.09 352 15.21 803 14.18
Consumer 2,556 10.62 3,436 11.83 1,795 10.43 892 9.51 354 8.22
Nonspecific allocation 5,673 - 8,122 - 11,747 - 8,196 - 14,908 -
- ------------------------------------------------------------------------------------------------------------------------------------
Total $38,287 100.0 $38,271 100.00 $37,261 100.00 $35,100 100.00 $38,351 100.00
- ------------------------------------------------------------------------------------------------------------------------------------
/1/ Excludes residential mortgage loans held for sale which are carried at the
lower of aggregate cost or market value.
16
Nonperforming Assets
Nonperforming assets increased to $42 million at December 31, 1995 compared
to $32 million at December 31, 1994. The increase is due in part to loans of
approximately $3 million to one borrower being classified as nonaccruing.
Although this borrower continues to make periodic payments, management has
classified these loans as nonaccruing due to the borrower's continued operating
losses and uncertain cash flow projections. Additionally, a nonperforming note
was purchased during the year for $4 million. Management believes that this note
is well secured by real property and other assets and will ultimately result in
a recovery. However, this note will be classified as nonaccruing until any
recovery is realized.
Information regarding nonperforming assets is presented in Table 11.
Nonperforming loans include nonaccrual loans, loans 90 days or more past due and
renegotiated loans. Loans 90 days or more past due at December 31, 1995 included
$6.8 million of residential mortgage loans guaranteed by agencies of the U.S.
Government. These loans were purchased from various investors to minimize
operating costs. The reserve for loan losses as a percent of nonperforming loans
decreased to 99% at December 31, 1995, compared to 138% at December 31, 1994 and
234% at December 31, 1993, due to the increase in nonperforming assets
previously discussed. See Note 1 to the Consolidated Financial Statements for
additional information.
Table 11 Nonperforming Assets
(Dollars in Thousands) DECEMBER 31,
--------------------------------------------------------------
1995 1994 1993 1992 1991
--------------------------------------------------------------
Nonperforming loans
Nonaccrual loans:
Commercial $14,646 $11,238 $ 2,383 $10,677 $11,822
Commercial real estate 10,621 5,273 4,854 10,209 17,595
Residential mortgage 2,794 2,916 1,788 2,391 1,956
Consumer 1,227 687 99 334 513
- ------------------------------------------------------------------------------------------------------
Total nonaccrual loans 29,288 20,114 9,124 23,611 31,886
Loans past due (90 days)/1/ 9,379 7,667 5,482 1,379 1,802
Renegotiated loans - - 1,323 1,448 1,901
- ------------------------------------------------------------------------------------------------------
Total nonperforming loans 38,667 27,781 15,929 26,438 35,589
- ------------------------------------------------------------------------------------------------------
Other nonperforming assets:
Commercial real estate 3,023 3,245 5,915 8,086 11,903
Other 376 855 1,608 3,076 2,374
- ------------------------------------------------------------------------------------------------------
Total other nonperforming assets 3,399 4,100 7,523 11,162 14,277
- ------------------------------------------------------------------------------------------------------
Total nonperforming assets $42,066 $31,881 $23,452 $37,600 $49,866
- ------------------------------------------------------------------------------------------------------
Ratios:
Reserve for loan losses to
nonperforming loans 99.02% 137.76% 233.92% 132.76% 107.76%
Nonperforming loans to period-end
loans/2/ 1.82 1.54 1.07 1.89 3.00
- ------------------------------------------------------------------------------------------------------
/1/ Includes residential mortgages
guaranteed by agencies of the U.S.
Government. $ 6,754 $ 6,549 $ 3,546 - -
/2/ Excludes residential mortgage loans
held for sale.
17
BOK FINANCIAL CORPORATION
Funding
Deposits
Deposits represent the primary source of funds which support BOK
financial's earning assets. Average deposits for 1995 increased $128 million or
5% from 1994. Year-end deposits increased $308 million or 12% from the previous
year-end. This increase in year-end deposits was primarily due to certificates
of deposit and public funds of $100 thousand or more which increased $213
million across all maturity ranges. Additionally, smaller denomination
certificates of deposits and demand deposit accounts increased $89 million and
$28 million, respectively.
Table 12 Maturity of Domestic CDs and Public
Funds in Amounts of $100,000 or More
(In Thousands)
December 31,
--------------------------------------------------------
1995 1994
--------------------------------------------------------
Months to maturity:
3 or less $171,763 $113,436
Over 3 through 6 210,495 96,638
Over 6 through 12 56,397 32,004
Over 12 47,531 31,173
- -------------------------------------------------------------------------------------------
Total $486,186 $273,251
- -------------------------------------------------------------------------------------------
Borrowings
Borrowings decreased $50 million during 1995, including the redemption of a
$23 million subordinated debenture, and represented 22% of total fundings at
December 31, 1995 compared to 26% at December 31, 1994. The decrease in
borrowings was offset by growth in deposits and capital. See Note 9 to the
Consolidated Financial Statements for additional information.
Capital
Equity capital of BOK Financial was $302 million and $237 million at
December 31, 1995 and 1994, respectively. The $65 million increase resulted
primarily from 1995 earnings and a decrease in unrealized losses on available
for sale securities.
Financial institutions are considered to be "well capitalized" pursuant to
the Federal Deposit Insurance Corporation Improvement Act of 1991 if their
Leverage, Tier 1 and Total Capital ratios are at least 5%, 6% and 10%,
respectively. As shown in Table 13, BOK Financial's capital ratios exceed the
regulatory definition of well capitalized. The capital ratios for BOk and CBNWA
are substantially the same as BOK Financial's ratios.
As defined by regulations, Tier 1 capital consists primarily of common
shareholders' equity less certain intangible assets. Total capital consists
primarily of Tier 1 capital plus preferred stock, subordinated debt and reserves
for loan losses, subject to certain limitations.
Table 13 Capital Ratios
December 31,
--------------------------------------------------------------
1995 1994 1993 1992 1991
--------------------------------------------------------------
Average shareholders' equity to
average assets 6.77% 6.37% 6.31% 6.21% 5.41%
Risk-based capital:
Tier 1 capital 9.91 9.14 9.07 8.14 8.02
Total capital 11.17 11.19 11.49 10.73 9.46
Leverage 6.55 5.64 5.76 5.84 5.33
- ------------------------------------------------------------------------------------------------------
18
Interest Rate Sensitivity and Liquidity
BOK Financial's asset/liability management policy addresses several
complementary goals: assuring adequate liquidity, maintaining an appropriate
balance between interest sensititve assets and liabilities, and maximizing net
interest revenue. The responsibility for attaining these goals rests with the
Asset/Liability Committee.
Interest rate sensitivity, the risk associated with changes in interest
rates, is of primary importance within the banking industry. Management has
established strategies and procedures to protect net interest revenue against
significant changes in interest rates. Generally, these strategies are designed
to achieve an acceptable level of net interest revenue based upon management's
projections of future changes in interest rates. Table 14 presents the interest
rate sensitivity of earning assets and interest-bearing liabilities at December
31, 1995. This table indicates that changes in interest rates will have a
greater impact on earning assets than on interest-bearing liabilities in the
first 30 days after the change, then for the remainder of the year, a greater
impact on interest-bearing liabilities than on earning assets. However, assets
and liabilities with similar contractual repricing characteristics may not
reprice at the same time or to the same degree. As a result, the interest rate
sensitivity gap analysis is not necessary the best indicator of the impact of
changes in interest rates on net interest revenue.
Management simulates the potential effect of changes in interest rates
through computer modeling which incorporates both the current gap position and
the expected magnitude of the repricing of specific types of assets and
liabilities. This modeling is performed assuming expected interest rates over
the next twelve months based on both a "most likely" rate scenario and a "shock
test" rate scenario assuming a 200 basis point increase over the next twelve
months. An independent source is used to determine the most likely interest
rates for the next year. At December 31, 1995, this modeling indicated that
under the most likely interest rate forecast for 1996, anticipated growth in net
interest revenue would be limited to 3% for 1995 net interest revenue and under
the shock test scenario, net interest revenue would decline 1% to 2%.
In addition to simulation modeling of the effects of changes in interest
rates on BOK Financial's projected net interest revenue, management models the
interest rate sensitivity of the securities portfolio. This modeling indicated
that the fair value of the available for sale securities portfolio, less
deferred income taxes, would decrease by approximately 3.2% for a 200 basis
point increase in market interest rates. These simulations are based on numerous
assumptions regarding the timing and extent of repricing characteristics. Actual
results may differ significantly.
Investment and available for sale securities totaling approximately $480
million are projected to mature in the next two years, based upon current
prepayment assumptions for mortgage-backed securities. Extension testing
performed on the securities portfolio indicates that the timing of projected
cash flows is not significantly extended by rising interest rates.
BOK Financial uses interest rate swaps, a form of off-balance-sheet
derivative product, in managing its interest rate sensitivity. These swaps are
used to more closely match the interest paid on certain long-term, fixed rate
certificates of deposit with earning assets. Swaps allow BOK Financial to offer
these deposits to its customers without altering the desired repricing
characteristics. BOK financial accrues and periodically receives a fixed amount
from the counterparties to these swaps and accrues and periodically makes a
variable payment to the counterparties. During 1995, income from these swaps
exceeded costs by $868 thousand. Credit risk from these swaps is closely
monitored and counterparties to these contracts are selected on the basis of
their credit worthiness among other factors. Derivative products are not used
for speculative purposes. See Note 14 to the Consolidated Financial Statements
for additional information.
19
Table 14 Intereste Rate Sensitivity Analysis
at December 31, 1995
(In Thousands)
1-30 31-90 91-365 1-5 Over
Days Days Days Years 5 Years Total
-------------------------------------------------------------------------------
Earning assets:
Securities $ 154,879 $ 64,672 $ 211,635 $ 860,613 $253,983 $1,545,782
Trading securities 7,777 - - - - 7,777
Loans, net 1,336,047 69,427 274,315 323,211 153,081 2,156,081
Funds sold and resell
agreements 8,440 - - - - 8,440
- -------------------------------------------------------------------------------------------------------------
Total earning assets 1,507,143 134,099 485,950 1,183,824 407,064 3,718,080
- -------------------------------------------------------------------------------------------------------------
Interest-bearing
liabilities:
Interest-bearing deposits 380,229 274,563 800,253 830,420 1,110 2,286,575
Other borrowings 485,594 416,290 546 45,376 - 947,806
- -------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 865,823 690,853 800,799 875,796 1,110 3,234,381
- -------------------------------------------------------------------------------------------------------------
Asset-liability gap 641,320 (556,754) (314,849) 308,028 405,954 483,699
Interest rate swaps
(receive fixed) - (45,000) (40,000) 85,000 - -
- -------------------------------------------------------------------------------------------------------------
Interest rate sensitivity
gap $ 641,320 $(601,754) $(354,849) $ 393,028 $405,954 $ 483,699
- -------------------------------------------------------------------------------------------------------------
Cumulative interest rate
sensitivity gap $ 641,320 $ 39,566 $(315,283) $ 77,745 $483,699 $ -
- -------------------------------------------------------------------------------------------------------------
The best measure of liquidity is the ability to obtain funds to meet cash
requirements. Liquidity is achieved through maturities of earning assets,
securities available for sale and loans held for sale. On the liability side,
liquidity depends on the availability of deposits and short-term borrowings in
both the local and national markets. BOK Financial obtains 70% of its funding
through deposits and 7% through equity.
In addition to funding sources available to its banking subsidiaries, BOK
Financial has established a $15 million line of credit with another financial
institution.
Cash provided by operations in 1995 totaled $23 million, or $56 million
excluding the increase in mortgage loans held for sale. This compares to cash
provided by operations of $206 million, or $59 million excluding the decrease in
mortgage loans held for sale in 1994.
Investing activities used $301 million, primarily for net loan fundings of
$358 million. This was partially offset by net securities sales and collections
of $65 million.
Financing activities provided $281 million during 1995. Certificates of
deposit provided $318 million which was partially offset by decreases in
borrowed funds and the repayment of a subordinated note. This increase in
deposits, which reverses a trend begun in 1992, is the result of innovative
pricing and internal incentive plans.
20
Report of Management on Financial Statements
Management is responsible for the consolidated financial statements which
have been prepared in accordance with generally accepted accounting principles.
In management's opinion, the consolidated financial statements present fairly
the financial conditions, results of operations and cash flows of BOK Financial
and its subsidiaries at the dates and for the periods indicated.
BOK Financial and its subsidiaries maintain a system of internal accounting
controls designed to provide reasonable assurance that transactions are executed
in accordance with management's general or specific authorization, and are
recorded as necessary to maintain accountability for assets and to permit
preparation of financial statements in accordance with generally accepted
accounting principles. This system includes written policies and procedures, a
corporate code of conduct, an internal audit program and standards for the
hiring and training of qualified personnel.
The Board of Directors of BOK Financial maintains an Audit Committee
consisting of outside directors that meet periodically with management and BOK
Financial's internal and independent auditors. The Committee considers the audit
and non-audit services to be performed by the independent auditors, makes
arrangements for the internal and independent audits and recommends BOK
Financial's selection of independent auditors. The Committee also reviews the
results of the internal and independent audits, considers and approves certain
of BOK Financial's accounting principles and practices, and reviews various
shareholder reports and other reports and filings.
Ernst & Young LLP, certified public accountants, have been engaged to audit
the consolidated financial statements of BOK Financial and its subsidiaries.
Their audit is conducted in accordance with generally accepted auditing
standards and their report on BOK Financial's consolidated financial statements
is set forth below.
Report of Independent Auditors
We have audited the accompanying consolidated balance sheets of BOK
Financial Corporation and subsidiaries at December 31, 1995 and 1994, and the
related consolidated statements of earnings, changes in shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements of BOK Financial
Corporation and subsidiaries referred to above present fairly, in all material
respects, the consolidated financial position of BOK Financial Corporation at
December 31, 1995 and 1994, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
As described in Note 1, BOK Financial Corporation changed its method of
accounting for mortgage servicing rights.
Ernst & Young LLP
Tulsa, Oklahoma
January 29, 1996
21
BOK FINANCIAL CORPORATION
Consolidated Statements of Earnings
(In Thousands Except Share Data)
1995 1994 1993 /1/
-----------------------------------------
INTEREST REVENUE
Loans $179,052 $ 138,415 $ 117,085
Taxable securities 83,076 73,157 57,490
Tax-exempt securities 12,075 9,252 4,743
- -------------------------------------------------------------------------------
Total securities 95,151 82,409 62,233
- -------------------------------------------------------------------------------
Trading securities 242 226 243
Funds sold and resell agreements 996 2,008 1,793
- -------------------------------------------------------------------------------
Total interest revenue 275,441 223,058 181,354
- -------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 97,739 71,141 65,244
Borrowed funds 62,086 31,534 7,962
Subordinated debenture 352 1,380 1,380
- -------------------------------------------------------------------------------
Total interest expense 160,177 104,055 74,586
- -------------------------------------------------------------------------------
NET INTEREST REVENUE 115,264 119,003 106,768
PROVISION FOR LOAN LOSSES 231 195 3,376
- -------------------------------------------------------------------------------
NET INTEREST REVENUE AFTER PROVISION
FOR LOAN LOSSES 115,033 118,808 103,392
- -------------------------------------------------------------------------------
OTHER OPERATING REVENUE
Brokerage and trading revenue 6,046 5,517 7,107
TransFund network revenue 7,025 6,039 5,811
Securities gains (losses), net 1,174 (1,868) 1,896
Trust fees and commissions 19,363 17,117 16,824
Service charges and fees on deposit
accounts 21,152 20,698 20,825
Mortgage banking revenue 20,336 15,868 12,564
Other revenue 16,050 10,993 11,583
- -------------------------------------------------------------------------------
Total other operating revenue 91,146 74,364 76,610
- -------------------------------------------------------------------------------
OTHER OPERATING EXPENSE
Personnel expense 67,298 63,111 60,891
Business promotion 6,039 6,213 5,535
Professional fees and services 5,898 4,664 5,385
Net occupancy, equipment and data
processing expense 27,324 23,619 25,161
FDIC and other insurance 4,406 6,386 6,171
Printing, postage and supplies 6,340 5,415 4,876
Net gains and operating expenses on
repossessed assets (3,098) (4,575) (2,792)
Amortization on intangible assets 5,992 5,597 4,133
Mortgage banking costs 12,529 10,764 7,590
Other expense 9,478 12,281 8,911
- -------------------------------------------------------------------------------
Total other operating expense 142,206 133,475 125,861
- -------------------------------------------------------------------------------
INCOME BEFORE TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING FOR
INCOME TAXES 63,973 59,697 54,141
Federal and state income tax 14,768 14,632 16,239
- -------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING FOR INCOME TAXES 49,205 45,065 37,902
Cumulative effect of change in
accounting for income taxes - - 1,570
- -------------------------------------------------------------------------------
NET INCOME $49,205 $ 45,065 $ 39,472
- -------------------------------------------------------------------------------
EARNINGS PER SHARE:
Primary:
Income before cumulative
effect of change in
accounting for income taxes $ 2.33 $ 2.12 $ 1.80
Cumulative effect of change
in accounting for income
taxes - - .08
- -------------------------------------------------------------------------------
Net Income $ 2.33 $ 2.12 $ 1.88
- -------------------------------------------------------------------------------
Fully Diluted:
Income before cumulative
effect of change in
accounting for income taxes $ 2.12 $ 1.93 $ 1.63
Cumulative effect of change
in accounting for income
taxes - - .07
- -------------------------------------------------------------------------------
Net Income $ 2.12 $ 1.93 $ 1.70
- -------------------------------------------------------------------------------
AVERAGE SHARES USED IN COMPUTATION:
Primary 20,495,250 20,516,246 20,348,173
Fully Diluted 23,233,566 23,248,315 23,120,991
- -------------------------------------------------------------------------------
/1/ Restated for poolings-of-interest which occurred in 1994 and 1993.
See accompanying notes to consolidated financial statements.
22
Consolidated Balance Sheets
(In Thousands Except Share Data)
December 31,
-----------------------------
1995 1994
-----------------------------
ASSETS
Cash and due from banks $ 303,499 $ 255,594
Funds sold and resell agreements 8,440 53,505
Trading securities 7,777 2,535
Securities:
Available for sale 1,366,661 630,242
Investment (fair value:
1995-$181,786; 1994-$887,211) 179,121 957,327
- ---------------------------------------------------------------------
Total securities 1,545,782 1,587,569
- ---------------------------------------------------------------------
Loans 2,194,368 1,844,053
Less reserve for loan losses 38,287 38,271
- ---------------------------------------------------------------------
Net loans 2,156,081 1,805,782
- ---------------------------------------------------------------------
Premises and equipment, net 47,673 43,170
Accrued revenue receivable 41,121 41,402
Excess cost over fair value of net
assets acquired and core deposit
premiums (net of accumulated
amortization: 1995-$21,526;
1994-$15,533) 37,134 43,846
Mortgage servicing rights 50,634 46,681
Real estate and other repossessed
assets 3,399 4,100
Other assets 20,378 14,092
- ---------------------------------------------------------------------
Total assets $4,221,918 $3,898,276
- ---------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing demand deposits $ 651,134 $ 622,930
Interest-bearing deposits:
Transaction 411,861 403,976
Money market 369,344 370,073
Savings 104,726 132,968
Time 1,400,644 1,099,627
- ---------------------------------------------------------------------
Total deposits 2,937,709 2,629,574
- ---------------------------------------------------------------------
Funds purchased and repurchase
agreements 697,497 743,248
Other borrowings 250,309 231,086
Accrued interest, taxes and expense 25,107 17,256
Other liabilities 9,731 17,210
Subordinated debenture - 23,000
- ---------------------------------------------------------------------
Total liabilities 3,920,353 3,661,374
- ---------------------------------------------------------------------
Shareholders' equity:
Preferred stock 23 13
Common stock ($.00006 par value;
2,500,000,000 shares authorized;
issued and outstanding: 1995 -
20,415,504; 1994 - 19,734,649) 1 1
Capital surplus 157,395 142,718
Retained earnings 146,727 111,878
Unrealized net loss on securities
available for sale (2,427) (17,423)
Notes receivable from exercise of
stock options (154) (285)
- ---------------------------------------------------------------------
Total shareholders' equity 301,565 236,902
- ---------------------------------------------------------------------
Total liabilities and
shareholders' equity $4,221,918 $3,898,276
- ---------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
23
BOK FINANCIAL CORPORATION
Consolidated Statements of Changes in Shareholders' Equity
(In Thousands)
-----------------------------------------------------------
Preferred Stock Common Stock
-------------------------- ------------------------
Shares Amount Shares Amount
-----------------------------------------------------------
January 1, 1993\2\ 250,065 $1,305 18,502 $ 1
Net income - - - -
Issuance of common stock - - 344 -
Issuance of common stock to Thrift Plan - - 49 -
Exercise of stock options - - 9 -
Payments on stock options notes - - - -
receivable
Cash dividends paid on preferred stock - - - -
Dividends paid in shares of common
stock:
Preferred stock - - 52 -
Common stock - - 515 -
Sale of treasury stock - - - -
Unrealized net gain on securities - - - -
available for sale
-----------------------------------------------------------
December 31, 1993\2\ 250,065 1,305 19,471 1
Net income - - - -
Issuance of common stock - - 7 -
Issuance of common stock to Thrift Plan - - 17 -
Exercise of stock options - - 10 -
Payments on stock options notes - - - -
receivable
Cash dividends paid on preferred stock - - - -
Dividends paid in shares of common
stock:
Preferred stock - - 65 -
Common stock - - 535 -
Payment to dissenting shareholders - - (71) -
Cancellation of treasury stock - - (299) -
Repurchase of preferred stock (65) (1,292) - -
Sale of treasury stock - - - -
Unrealized net loss on securities - - - -
available for sale ----------------------------------------------------------
December 31, 1994 250,000 13 19,735 1
Net income - - - -
Director retainer shares - - 8 -
Issuance of common stock to Thrift Plan - - 3 -
Exercise of stock options - - 6 -
Payments on stock options notes - - - -
receivable
Issuance of preferred stock 102 10 - -
Dividends paid in shares of common
stock:
Preferred stock - - 70 -
Common stock - - 594 -
Unrealized net gain on securities - - - -
available for sale ----------------------------------------------------------
December 31, 1995 250,102 $ 23 20,416 $ 1
- -------------------------------------------------------------------------------------------------------------------
/1/ Notes receivable from exercise of stock options.
/2/ Restated for pooling-of-interests which occurred in 1994 and 1993.
See accompanying notes to consolidated financial statements.
24
- ------------------------------------------------------------------------------------------------------------------------
Capital Retained Treasury Stock Unrealized Notes
-------------------------
Surplus Earnings Shares Amount Gain (Loss) Receivable\1\ Total
- ------------------------------------------------------------------------------------------------------------------------------
$109,654 $ 55,103 309 $(1,733) $ - $ (694) $163,636
-
- 39,472 - - - - 39,472
6,866 - - - - - 6,866
1,069 - - - - - 1,069
196 - - - - (39) 157
- - - - - 397 397
- (128) - - - - (128)
1,125 (1,125) - - - - -
12,618 (12,618) - - - - -
- - - 3 - - 3
- - - - 2,471 - 2,471
- ------------------------------------------------------------------------------------------------------------------------------
131,528 80,704 309 (1,730) 2,471 (336) 213,943
- 45,065 - - - - 45,065
95 - - - - - 95
381 - - - - (42) 339
167 - - - - - 167
- - - - - 93 93
- (113) - - - - (113)
1,500 (1,500) - - - - -
12,264 (12,278) - - - - (14)
(1,707) - - - - - (1,707)
(1,510) - (299) 1,510 - - -
- - - - - - (1,292)
- - (10) 220 - - 220
- - - - (19,894) - (19,894)
- ------------------------------------------------------------------------------------------------------------------------------
142,718 111,878 - - (17,423) (285) 236,902
- 49,205 - - - - 49,205
157 - - - - - 157
70 - - - - - 70
104 - - - - - 104
- - - - - 131 131
- - - - - - 10
1,500 (1,500) - - - - -
12,846 (12,856) - - - - (10)
- - - - 14,996 - 14,996
- ------------------------------------------------------------------------------------------------------------------------------
$157,395 $146,727 - $ - $ (2,427) $ (154) $301,565
- ------------------------------------------------------------------------------------------------------------------------------
25
BOK FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(In Thousands)
1995 1994 1993\1\
-------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 49,205 $ 45,065 $ 39,472
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Cumulative effect of change in
accounting for income taxes - - (1,570)
Noncash Thrift Plan contribution - 257 -
Provisions for loan and repossessed
real estate losses 231 195 3,436
Depreciation and amortization 19,612 16,931 13,925
Net amortization of securities
discounts and premiums 1,929 6,848 7,845
Net gain on sale of assets (4,742) (626) (11,278)
Mortgage loans originated for resale (519,392) (514,635) (779,749)
Proceeds from sale of mortgage loans
held for resale 486,347 661,146 673,619
(Increase) decrease in trading
securities (5,242) 235 (1,807)
(Increase) decrease in accrued revenue
receivable 277 (8,895) (287)
Increase in other assets (6,099) (2,875) (14,368)
Increase (decrease) in accrued
interest, taxes and expense (1,376) 9,534 (2,676)
Increase (decrease) in other liabilities 2,275 (7,249) 1,257
- -----------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 23,025 205,931 (72,181)
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of available for
sale securities 134,109 82,088 268,433
Proceeds from maturities of
investment securities 17,242 167,082 686,601
Proceeds from maturities of available
for sale securities 193,855 155,351 247,674
Purchases of investment securities (29,566) (606,682) (1,095,675)
Purchases of available for sale
securities (250,320) (436,644) -
Loans originated or acquired net of
principal collected (357,736) (275,366) (85,808)
Proceeds from sales of assets 43,426 49,052 47,265
Purchases of assets (32,900) (29,158) (7,294)
Cash and cash equivalents of
subsidiaries & branches acquired and
sold, net (19,371) (12,014) 73,435
- -----------------------------------------------------------------------------------------------------
Net cash used by investing activities (301,261) (906,291) (134,631)
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand
deposits, transaction deposits,
money market deposits, and savings
accounts 12,042 (86,295) (9,250)
Net increase (decrease) in certificates of deposit 318,100 (22,540) (109,980)
Net increase (decrease) in other borrowings (26,528) 733,450 80,642
Repayment of subordinated debenture (23,000) - -
Issuance of preferred, common and treasury stock, net 331 520 1,207
Repurchase of preferred stock - (1,292) -
Payments to dissenting shareholders - (1,707) -
Dividends on preferred stock - (113) (128)
Payments on notes receivable 131 93 397
- -----------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 281,076 622,116 (37,382)
- -----------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 2,840 (78,244) 25,068
- -----------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 309,099 387,343 362,275
- -----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 311,939 $ 309,099 $ 387,343
- -----------------------------------------------------------------------------------------------------
CASH PAID FOR INTEREST $ 157,398 $ 98,677 $ 79,309
- -----------------------------------------------------------------------------------------------------
CASH PAID FOR TAXES 10,954 9,609 12,694
- -----------------------------------------------------------------------------------------------------
NET LOANS TRANSFERRED TO REPOSSESSED 2,159 942 3,227
REAL ESTATE
- -----------------------------------------------------------------------------------------------------
NET ASSETS ACQUIRED FOR STOCK - - 6,866
- -----------------------------------------------------------------------------------------------------
PAYMENT OF DIVIDENDS IN COMMON STOCK 14,346 13,764 13,743
- -----------------------------------------------------------------------------------------------------
/1/ Restated for poolings-of-interest which occurred in 1994 and 1993.
See accompanying notes to consolidated financial statements.
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Significant Accounting Policies
BASIS OF PRESENTATION
The Consolidated Financial Statements of BOK Financial Corporation ("BOK
Financial") have been prepared in conformity with generally accepted accounting
principles, including general practices of the banking industry. The
consolidated financial statements include the accounts of BOK Financial and its
subsidiaries, principally Bank of Oklahoma, N.A. and its subsidiaries ("BOk")
and Citizens Bank of Northwest Arkansas, N.A. Certain prior year amounts have
been reclassified to conform to current year classifications.
NATURE OF OPERATIONS
BOK Financial, through its subsidiaries, provides a wide range of financial
services to commercial and industrial customers, other financial institutions
and consumers throughout Oklahoma, Northwest Arkansas and North Texas. These
services include depository and cash management; lending and lease financing;
mortgage banking; securities brokerage, trading and underwriting; and personal
and corporate trust.
USE OF ESTIMATES
Preparation of BOK Financial's financial statements requires management to
make estimates of future economic activities, including interest rates, loan
collectibility and prepayments and cash flows from customer accounts. These
estimates are based upon current conditions and information available to
management. Actual results may differ significantly from these estimates.
ACQUISITIONS
Assets and liabilities acquired by purchase are recorded at fair values on the
acquisition dates. Intangible assets are amortized using straight-line and
accelerated methods over the estimated benefit periods. These periods range from
7 to 25 years for goodwill and 7 to 10 years for core deposit intangibles. The
Consolidated Statements of Earnings include the results of purchases from the
dates of acquisition. The financial statements of companies acquired in pooling-
of-interests transactions are combined with the Consolidated Financial
Statements of BOK Financial at historical cost as if the mergers occurred at the
beginning of the earliest period presented.
CASH EQUIVALENTS
Due from banks, funds sold (generally federal funds sold for one-day periods)
and resell agreements (which generally mature within one to 30 days) are
considered cash equivalents.
SECURITIES
Securities are identified as trading, investment (held to maturity) or available
for sale at the time of purchase based upon the intent of management, liquidity
and capital requirements, regulatory limitations and other relevant factors.
Trading securities, which are acquired for profit through resale, are carried at
market value with unrealized gains and losses included in current period
earnings. Investment securities are carried at amortized cost. Amortization is
computed by methods which approximate level yield and is adjusted for changes in
prepayment estimates. Securities identified as available for sale are carried at
fair value with unrealized gains and losses included in shareholders' equity,
net of deferred income taxes. Realized gains and losses on sales of securities
are based upon the adjusted cost of the specific security sold.
LOANS
Loans are either secured or unsecured based on the type of loan and the
financial condition of the borrower. Repayment is generally expected from cash
flow or proceeds from the sale of selected assets of the borrower; however, BOK
Financial is exposed to risk of loss on loans due to the borrower's
difficulties, which may arise from any number of factors including problems
within the respective industry or local economic conditions. Access to
collateral, in the event of borrower default, is reasonably assured through
adherence to applicable lending laws and through sound lending standards and
credit review procedures.
Interest is accrued at the applicable interest rate on the principal amount
outstanding. Loans are placed on nonaccrual status when the collection of
principal or interest is 90 days or more past due or when, in the opinion of
management, full collection of principal or interest is uncertain. Interest
previously accrued but not collected is charged against interest income when the
loan is placed on nonaccrual status. Payments on nonaccrual loans are applied to
principal or reported as interest income, according to management's judgment as
to the collectibility of principal.
Loan origination and commitment fees, and direct loan origination costs
when significant, are deferred and amortized as an adjustment to yield over the
life of the loan or over the commitment period, as applicable.
Mortgage loans held for sale are carried at the lower of aggregate cost or
market value, including estimated losses on unfunded commitments and gains or
losses on related forward sales contracts.
RESERVE FOR LOAN LOSSES
The reserve for loan losses is maintained at a level that, in the opinion of
management, is adequate to absorb losses inherent in the loan portfolio. The
adequacy of the reserve for loan losses is determined by management based upon
evaluation of the individual credits in the loan portfolio, historical credit
losses, anticipated economic conditions in BOK Financial's primary market areas
and other relevant factors. Beginning in 1994, BOK Financial adopted Financial
Accounting Standards Board Statement No. 114, "Accounting by Creditors for
Impairment of a Loan"
27
("FAS 114"). The allowance for credit losses related to loans that are
identified for evaluation in accordance with FAS 114 is based on discounted cash
flows using the loan's initial effective interest rate or the fair value of the
collateral for certain collateral dependent loans. The amount of impairment
determined in accordance with FAS 114 did not differ materially from amounts
previously provided. This evaluation is inherently subjective as it requires
material estimates including the amounts and timing of future cash flows
expected to be received on impaired loans that may be susceptible to significant
change.
A provision for loan losses is charged against earnings in amounts
necessary to maintain an adequate reserve for loan losses. Loans are charged off
when, in the opinion of management, full collection of the loan is not probable.
Recoveries of loans previously charged off are added to the reserve.
REAL ESTATE AND OTHER REPOSSESSED ASSETS
Real estate and other repossessed assets are assets acquired in partial or
total forgiveness of debt. These assets are carried at the lower of cost, fair
value at date of foreclosure or current fair value less estimated selling costs.
Income generated by these assets is recognized as received, and operating
expenses are recognized as incurred.
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed on a straight-line
basis over estimated useful lives of the assets or, for leasehold improvements,
over the shorter of the estimated useful lives or remaining lease terms.
MORTGAGE SERVICING RIGHTS
BOK Financial adopted Statement of Financial Accounting Standards No. 122,
"Accounting for Mortgage Servicing Rights" ("FAS 122"), during 1995. FAS 122
requires, among other things, that capitalized mortgage servicing rights be
carried at the lower of cost less accumulated amortization of fair value.
Amortization is determined in proportion to the projected cash flows over the
estimated lives of the servicing portfolios. The actual cash flows are dependent
upon the prepayment of the mortgage loans and may differ significantly from the
estimates.
Fair value is determined by discounting the estimated cash flows of
servicing revenue, less projected servicing costs, using a risk-adjusted spread
over U.S. Treasury rates, which is the assumed market rate for these
instruments. Prepayment assumptions are based on industry consensus provided by
independent reporting sources. Changes in current interest rates may
significantly affect these assumptions by changing loan refinancing activity.
Fair value for each servicing portfolio acquired prior to the adoption of FAS
122 is based upon a single weighted average interest rate and remaining life for
that portfolio. Fair value for each servicing portfolio acquired and for
servicing rights originated since the adoption of FAS 122 is based upon an
interest rate stratification for each portfolio. Separate prepayment assumptions
are then used to project net cash flows by interest rate strata within each
portfolio. A valuation allowance is provided when the amortized cost of each
portfolio or each interest rate strata exceeds the calculated fair value.
FAS 122 also requires that originated mortgage servicing rights be
recognized when either mortgage loans are originated pursuant to an existing
plan for sale or, if no such plan exists, when the mortgage loans are sold.
Substantially all fixed rate mortgage loans originated by BOK Financial are sold
under existing commitments. The fair value of the originated servicing rights is
determined at closing based upon current market rates.
INTEREST RATE SWAPS AND FORWARD COMMITMENTS
BOk uses interest rate swaps and forward sales contracts as part of its
interest rate risk management strategy. Interest rate swaps are used to modify
the interest expense of certain long-term, fixed rate certificates of deposit.
Amounts payable to or receivable from the counterparties are reported in
interest expense using the accrual method. In the event of the early redemption
of hedged certificates of deposit, any realized or unrealized gain or loss from
the swaps would be recognized in income coincident with the redemption.
Forward sales contracts are used to hedge existing and anticipated loans in
conjunction with mortgage banking activities. The fair value of these
instruments is included in determining the adjustment of the loan held for sale
portfolio to the lower of cost or market. Gains or losses on closed contracts
are recognized when the underlying assets are disposed.
The cost of terminating these contracts prior to their expiration dates is
expensed when incurred.
FEDERAL AND STATE INCOME TAXES
BOK Financial adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("FAS 109"), during 1993. Under FAS 109, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between financial statements carrying values of
assets and liabilities and their respective tax bases. Deferred tax assets are
reduced by a valuation allowance based upon management's assessment of
previously paid taxes, estimated future taxable income and other factors.
EMPLOYEE BENEFIT PLANS
BOk sponsors various plans, including a defined benefit pension plan ("Pension
Plan"), a qualified profit sharing plan ("Thrift Plan"), employee health care
plans and a post-retirement health care plan. Employer contributions to the
Thrift Plan, which match employee contributions subject to percentage and years
of service limits, are expenses when incurred. Pension Plan costs, which are
based upon actuarial computations of current costs, are expensed annually.
Unrecognized prior service cost and net gains or losses are amortized on a
straight-line basis over the estimated remaining lives of the participants. BOK
Financial recognizes the expense of health care benefits on the accrual method.
Employer contributions to the Pension Plan and various health care plans are in
accordance with Federal income tax regulations.
28
BOK Financial adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" ("FAS 112"), effective
January 1, 1994. FAS 112 did not significantly affect the consolidated financial
position or net income of BOK Financial.
EXECUTIVE BENEFIT PLANS
BOK Financial accounts for its stock option plans under the provisions of APB
25, "Accounting for Stock Issued to Employees", and intends to continue to do
so.
FIDUCIARY SERVICES
Fees and commissions on approximately $7.6 billion of assets managed by BOK
Financial under various fiduciary arrangements are recognized on the accrual
method.
EARNINGS PER SHARE
Primary earnings per share are computed by dividing net income less the value of
preferred stock dividends (including dividends paid in common shares) by the
weighted average number of common shares and common share equivalents
outstanding. The effect of stock options issued by BOK Financial, which are
considered common share equivalents, on the average number of common shares
outstanding is determined by the treasury stock method.
Fully diluted earnings per share include the maximum dilutive effect of the
conversion of preferred stock at a ratio of one common share per 92 preferred
shares.
The average number of shares outstanding has been restated for the effects
of the poolings-of-interests and stock dividends.
(2) Acquisitions
On May 7, 1993, BOK Financial issued 1,183,691 common shares to merge with
Brookside Bancshares, Inc., and its subsidiary, Brookside State Bank, in a
pooling-of-interests.
On November 14, 1994, BOK Financial issued 1,380,017 common shares to merge
with Citizen Holding Company and its subsidiaries, Citizens Bank of Muskogee and
Citizens Bank of Northwest Arkansas, in a pooling-of-interests.
On May 7, 1993, BOK Financial issued 343,295 common shares valued at $6.9
million and paid $3.9 million to acquire Sands Springs Bancshares, Inc., and its
subsidiary, Sand Springs State Bank.
On October 9, 1993, certain assets were acquired and the deposits and
certain obligations of two branches of the failed Heartland Federal Savings &
Loan Association were assumed from the FDIC for $5.1 million.
BOk paid $11.7 million, on May 2, 1994, to acquire Plaza National Bank,
Bartlesville, Oklahoma; paid $6.1 million, on June 13, 1994, for Texas Commerce
Trust Company-Sherman National Association, a national association limited to
trust powers only; and paid $8.2 million, on October 7, 1994, to acquire
Northwest Bank of Enid, Enid, Oklahoma.
The allocation of the purchase prices to the assets acquired and
liabilities assumed in the preceding acquisition is as follows (in thousands):
AGGREGATE ACQUISITIONS
--------------------------
1994 1993
--------------------------
Cash and cash equivalents $ 14,019 $ 77,315
Securities 40,508 21,896
Loans:
Commercial 27,674 22,660
Commercial real estate 16,300 -
Residential mortgage 17,160 1,178
Consumer 18,484 20,444
Allowance for loan losses (955) (1,642)
- -------------------------------------------------------
Total loans 78,663 42,640
- -------------------------------------------------------
Premises and equipment 2,027 1,510
Core deposit premiums 839 1,397
Other assets 2,780 1,564
- -------------------------------------------------------
Total assets acquired 138,836 146,322
- -------------------------------------------------------
Deposits:
Noninterest bearing 18,098 11,715
Interest bearing 109,384 130,143
- -------------------------------------------------------
Total deposits 127,482 141,858
- -------------------------------------------------------
Borrowed funds 327 1,923
Other liabilities 545 385
- -------------------------------------------------------
Total liabilities assumed 128,354 144,166
- -------------------------------------------------------
Net assets acquired (10,482) (2,156)
Purchase price 26,033 10,746
- -------------------------------------------------------
Goodwill $ 15,551 $ 8,590
- -------------------------------------------------------
(3) Sale of Assets To Related Party
During April 1991, BOk sold to BOK Financial's principal shareholder, George B.
Kaiser ("Kaiser"), and related business entities certain loans, repossessed real
estate and the rights to future recoveries on certain charge-offs.
Recoveries collected by BOk and paid to Kaiser were $1.4 million, $2.4
million and $4.0 million for 1995, 1994 and 1993, respectively.
29
(4) Securities
INVESTMENT SECURITIES
The book and fair values of investment securities are as follows (in thousands):
December 31,
-----------------------------------------------------------------------------
1995 1994
-----------------------------------------------------------------------------
Book Fair Gross Unrealized Book Fair Gross Unrealized
------------------ ------------------
Value Value Gain Loss Value Value Gain Loss
----------------------------------------------------------------------------------
U.S. Treasury $ 716 $ 721 $ 5 $ - $ 1,224 $ 1,211 $ 1 $ (14)
Municipal and other tax exempt 95,907 97,628 2,099 (378) 244,411 231,338 306 (13,379)
Mortgage-backed securities:
U. S. agencies 78,832 79,777 1,089 (144) 694,086 637,586 150 (56,650)
Other - - - - 9,825 9,625 - (200)
- --------------------------------------------------------------------------------------------------------------------
Total mortgage-backed securities 78,832 79,777 1,089 (144) 703,911 647,211 150 (56,850)
- --------------------------------------------------------------------------------------------------------------------
Other debt securities 3,666 3,660 3 (9) 7,781 7,451 3 (333)
- --------------------------------------------------------------------------------------------------------------------
Total $179,121 $181,786 $3,196 $(531) $957,327 $887,211 $460 $(70,576)
- --------------------------------------------------------------------------------------------------------------------
The book and fair values of investment securities at December 31, 1995, by
contractual maturity, are as shown in the following table (dollars in
thousands):
Weighted
Less than One to Five to Over Average
One Year Five Years Ten Years Ten Years Total Maturity
---------------------------------------------------------------------------
U.S. Treasuries:
Book value $ 214 $ 502 $ - $ - $ 716 1.63
Fair value 216 505 - - 721
Nominal yield 5.73% 5.94% 5.88%
Municipal and other tax exempt:
Book value 5,928 46,247 38,393 5,339 95,907 4.95
Fair value 5,926 46,664 39,361 5,677 97,628
Nominal yield \1\ 7.30 7.23 7.78 9.50 7.58
Other debt securities:
Book value 3,454 99 113 - 3,666 0.58
Fair value 3,448 99 113 - 3,660
Nominal yield \1\ 4.94 5.00 4.50 - 4.93
---------------------------------------------------------------------------
Total fixed maturity securities:
Book value $9,596 $46,848 $38,506 $5,339 $100,289
Fair value 9,590 47,268 39,474 5,677 102,009
Nominal yield 6.42% 7.21% 7.77% 9.50% 7.47%
-------------------------------------------------
Mortgage-backed securities:
Book value 78,832 -\2\
Fair value 79,777
Nominal yield \3\ 7.27%
-----------
Total investment securities:
Book value $179,121
Fair value 181,786
Nominal yield 7.38%
-----------
\1\ Calculated on a taxable equivalent basis using a 39% effective tax rate.
\2\ The average expected lives of mortgage-backed securities were 3.8 years
based upon current prepayment assumptions.
\3\ The nominal yield on mortgage-backed securities is based upon prepayment
assumptions at the purchase date. Actual yields earned may differ
significantly based upon actual prepayments.
30
AVAILABLE FOR SALE SECURITIES
The amortized cost and fair value of available for sale securities are as
follows (in thousands):
December 31,
-------------------------------------------------------------------------------------------
1995 1994
-------------------------------------------------------------------------------------------
Book Fair Gross Unrealized Book Fair Gross Unrealized
-------------------- --------------------------
Value Value Gain Loss Value Value Gain Loss
-------------------------------------------------------------------------------------------
U.S. Treasury $ 221,201 $ 222,478 $1,552 $ (275) $261,544 $255,347 $75 $ (6,272)
Municipal and other tax exempt 165,709 166,855 2,532 (1,386) - - - -
Mortgage-backed securities:
U. S. agencies 941,020 934,433 3,842 (10,429) 374,078 352,169 - (21,909)
Other 8,154 8,011 1 (144) - - - -
- -------------------------------------------------------------------------------------------------------------------------------
Total mortgage-backed securities 949,174 942,444 3,843 (10,573) 374,078 352,169 - (21,909)
- -------------------------------------------------------------------------------------------------------------------------------
Other debt securities 250 98 2 (154) - - - -
Equity securities and mutual funds 34,145 34,786 641 - 22,726 22,726 - -
- -------------------------------------------------------------------------------------------------------------------------------
Total $1,370,479 $1,366,661 $8,570 $(12,388) $658,348 $630,242 $75 $(28,181)
- -------------------------------------------------------------------------------------------------------------------------------
The amortized cost and fair values of available for sale securities at December
31, 1995, by contractual maturity, are as shown in the following table (dollars
in thousands):
Weighted
Less than One to Five to Over Average
One Year Five Years Ten Years Ten Years Total Maturity
------------------------------------------------------------------------
U.S. Treasuries:
Amortized cost $133,809 $ 87,392 $ - $ - $ 221,201 0.96
Fair value 133,877 88,601 - - 222,478
Nominal yield 6.09% 6.09% - - 6.09%
Municipal and other tax exempt:
Amortized cost 4,173 60,885 87,820 12,831 165,709 6.02
Fair value 4,169 60,543 88,518 13,625 166,855
Nominal yield/1/ 7.08 6.72 7.70 9.16 7.44
Other debt securities:
Amortized cost 250 - - - 250 0.42
Fair value 98 - - - 98
Nominal yield 8.12 - - - 8.12
------------------------------------------------------------------------
Total fixed maturity securities:
Amortized cost $138,232 $148,277 $87,820 $12,831 $ 387,160
Fair value 138,144 149,144 88,518 13,625 389,431
Nominal yield 6.12% 6.35% 7.70% 9.16% 6.67%
------------------------------------------------------------------------
Mortgage-backed securities:
Amortized cost 949,174 -\2\
Fair value 942,444
Nominal yield/4/ 6.03%
-------------
Equity securities and mutual funds:
Amortized cost 34,145 -\3\
Fair value 34,786
Nominal yield 4.98%
-------------
Total available for sale securities:
Amortized cost $1,370,479
Fair value 1,366,661
Nominal yield 6.18%
-------------
\1\ Calculated on a taxable equivalent basis using a 39% effective tax rate.
\2\ The average expected lives of mortgage-backed securities were 3.7 years
based upon current prepayment assumptions.
\3\ Consists primarily of Federal Reserve Bank and Federal Home Loan Bank stock
with no stated maturity.
\4\ The nominal yield on mortgage-backed securities is based upon prepayment
assumptions at the purchase date. Actual yields earned may differ
significantly based upon actual prepayments.
31
Sales of available for sale securities resulted in gains and losses as follows
(in thousands):
1995 1994 1993
--------------------------------
Proceeds $134,109 $82,088 $268,433
Gross realized gains 1,246 159 2,199
Gross realized losses 72 2,027 303
Related federal and state income tax
expense (benefit) 270 (467) 569
- ------------------------------------------------------------------------
Effective December 20, 1995, BOK Financial adopted the provisions of a
Financial Accounting Standards Board special report on Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities", which affects the securities portfolio.
This report permitted a one-time opportunity to sell or transfer securities
from the investment category to the available for sale or trading categories
without tainting the remaining portfolio. BOK Financial transferred-mortgage-
backed and municipal securities with a total amortized cost of $788.5 million
and a net unrealized loss of $4.0 million from the investment category to
available for sale in response to the more restrictive interpretation of FAS 115
included in this special report.
Effective November 14, 1994, certain securities obtained through the
acquisition of Citizens Holding Company were transferred from the held to
maturity portfolio to available for sale. The transfer served to structure the
acquired portfolio in accordance with BOK Financial's existing investment
strategy. The securities transferred had a total amortized cost of $6.7 million
and a net unrealized loss of $184 thousand as of the date of transfer.
Securities with amortized costs of $986.5 million and $1.2 billion at
December 31, 1995 and 1994, respectively, were pledged to secure securities
repurchase agreements, public and trust funds on deposit and for other purposes
as required by law.
(5) Loans
Significant components of the loan portfolio are as follows (in thousands):
December 31,
---------------------------------------------------------------------------------------
1995 1994
---------------------------------------------------------------------------------------
Fixed Variable Non Fixed Variable Non
Rate Rate Accrual Total Rate Rate Accrual Total
---------------------------------------------------------------------------------------
Commercial $ 81,250 $ 765,168 $14,646 $ 861,064 $174,431 $ 560,397 $11,238 $ 746,066
Commercial real estate 215,750 372,231 10,621 598,602 158,206 306,813 5,273 470,292
Residential mortgage 149,783 284,239 2,794 436,816 195,311 175,162 2,916 373,389
Residential mortgage - held for sale 72,412 - - 72,412 26,314 14,595 - 40,909
Consumer 180,489 43,758 1,227 225,474 191,619 21,091 687 213,397
- ------------------------------------------------------------------------------------------------------------------------------
Total $699,684 $1,465,396 $29,288 $2,194,368 $745,881 $1,078,058 $20,114 $1,844,053
- ------------------------------------------------------------------------------------------------------------------------------
Foregone interest on nonaccrual loans $ 2,928 $ 1,392
Substantially all of the commercial and consumer loan portfolios and
approximately 74% of the residential mortgage loan portfolio (excluding loans
held for sale) are loans to businesses and individuals in Oklahoma or Northwest
Arkansas. This geographic concentration subjects the loan portfolio to the
general economic conditions within this area.
Within the commercial loan classification, loans to energy-related
businesses total $159.9 million, or 7% of total loans. Other notable segments
include wholesale/retail, $143.9 million; manufacturing, $136.7 million; and
agriculture, $86.7 million.
Commercial real estate loans are primarily secured by properties located in
the Tulsa or Oklahoma City, Oklahoma metropolitan areas. The major portions of
these properties are multifamily residences, $139.3 million; retail facilities,
$65.1 million; office buildings, $43.0 million; hotels, $41.4 million; and
medical/nursing facilities, $38.7 million.
32
Included in loans at December 31 are loans to executive officers, directors
or principal shareholders of BOK Financial, as defined in Regulation S-X of the
Securities and Exchange Commission. Such loans have been made on substantially
the same terms as those prevailing at the time for loans to other customers in
comparable transactions. Information relating to loans to executive officers,
directors or principal shareholders is summarized as follows (in thousands):
1995 1994
---------------------
Beginning balance $28,385 $22,767
Advances 21,185 12,038
Payments (3,458) (3,816)
Adjustments (708) (2,604)
- -------------------------------------------------------------
Ending balance $45,404 $28,385
- -------------------------------------------------------------
Adjustments are primarily due to certain individuals being included for the
first time or no longer being included as an executive officer or director of
BOK Financial.
The activity in the reserve for loan losses is summarized as follows (in
thousands):
1995 1994 1993
--------------------------------
Beginning balance $38,271 $37,261 $35,100
Provision for loan losses 231 195 3,376
Loans charged off (3,988) (3,237) (6,522)
Recoveries 3,773 3,097 3,665
Addition due to acquisitions - 955 1,642
- ------------------------------------------------------------------------
Ending balance $38,287 $38,271 $37,261
- ------------------------------------------------------------------------
At December 31, 1995, the recorded investment in loans that are considered
to be impaired under FAS 114 was $28.1 million (all of which were on a
nonaccrual basis). Included in this amount is $12.5 million of impaired loans
for which the related allowance for credit losses is $4.8 million. The average
recorded investments in impaired loans during the years ended December 31, 1995
and 1994 were approximately $22.2 million and $13.4 million, respectively.
Interest income recognized on impaired loans during 1995 and 1994 was not
significant.
(6) PREMISES AND EQUIPMENT
Premises and equipment at December 31 are summarized as follows (in thousands):
DECEMBER 31,
---------------------
1995 1994
---------------------
Land $ 8,543 $ 8,553
Buildings and improvements 28,083 26,072
Furniture and equipment 27,352 19,577
- -------------------------------------------------------------
Subtotal 63,978 54,202
- -------------------------------------------------------------
Less accumulated depreciation and
amortization 16,305 11,032
- -------------------------------------------------------------
Total $ 47,673 $ 43,170
- -------------------------------------------------------------
Depreciation and amortization of premises and equipment were $5.6 million, $4.2
million and $3.5 million for the years ended December 31, 1995, 1994 and 1993,
respectively.
(7) MORTGAGE BANKING ACTIVITIES
BOK Financial engages in mortgage-banking activities through its
subsidiary, BancOklahoma Mortgage Corp. ("BOMC"). Residential mortgage loans
held for sale totaled $72.4 million and $40.9 million and outstanding mortgage
loan commitments totaled $125.4 million and $102.0 million, respectively, at
December 31, 1995 and 1994. Mortgage loan commitments are generally outstanding
for 60 to 90 days and are subject to both credit and interest rate risk. Credit
risk is managed through underwriting policies and procedures, including
collateral requirements, which are generally accepted by the secondary loan
markets. Exposure to interest rate fluctuations is partially hedged through the
use of mortgage-backed securities forward sales contracts. These contracts set
the price for loans which will be delivered in the next 60 to 90 days. At
December 31, 1995, forward sales contracts totaled $118.1 million. Mortgage
loans held for sale are carried at the lower of aggregate cost or market value,
including estimated losses on unfunded commitments and gains or losses on
forward sales contracts. At December 31, 1995, BOMC owned the rights to service
76,074 mortgage loans with outstanding principal balances of $5.4 billion,
including $253 million serviced for BOk, and held related funds for investors
and borrowers of $76.6 million. The weighted average interest rate and remaining
term was 7.74% and 288 months, respectively. Mortgage loans sold with recourse
totaled $11.3 million at December 31, 1995. At December 31, 1994, BOMC owned the
rights to service mortgage loans with outstanding principal balances of $5.1
billion and held related funds for investors and borrowers of $53.4 million.
33
Activity in capitalized mortgage servicing rights and related valuation
allowance during 1995 is as follows:
Capitalized Mortgage Servicing Rights Valuation
------------------------------------------
Purchased Originated Total Allowance Net
-------------------------------------------------------------------------
Beginning balance $46,681 $ - $46,681 $ - $46,681
Additions 10,387 1,783 12,170 - 12,170
Amortization expense (7,536) (142) (7,678) - (7,678)
Provision for impairment - - - (539) (539)
-----------------------------------------------------------------------------------------------------
Ending balance $49,532 $1,641 $51,173 (539) $50,634
-----------------------------------------------------------------------------------------------------
Estimated fair value of
mortgage servicing rights/1/ $66,528 $1,954 $68,482 $ - $68,482
-----------------------------------------------------------------------------------------------------
/1/ Excludes approximately $18.9 million of loan servicing rights on
mortgage loans originated prior to the adoption of FAS 122.
Fair value is determined by discounting the projected net cash flows.
Significant assumptions are:
Discount rate - Risk adjusted spread over U.S. Treasury rates for similar
- -------------
remaining terms, ranging from 10.17% to 10.41%.
Prepayment rate - Industry consensus prepayment estimates ranging from 7.3% to
- ---------------
21.4% from an independent reporting source based upon interest rate, original
term and loan type.
Loan servicing costs - $50 per conventional loan and $60 per government insured
- --------------------
loan.
During the first quarter of 1994, management discovered that Lenders
Mortgage Services, Inc. ("Lenders"), an originator of loans from which BOMC
purchased mortgage loans, had not paid off existing mortgages on certain
refinancing loans purchased by BOMC, primarily in 1994. Involuntary proceedings
have been commenced against Lenders under Chapter 7 of the U.S. Bankruptcy Code
and a Trustee has been appointed. Lenders will not be able to perform under the
repurchase provision of the loan purchase agreement. Management intends to
pursue recoveries from various other parties; however, any such recoveries are
uncertain at this time. Pretax charges of $5.2 million were recognized in 1994
based upon management's evaluation of information currently available.
(8) DEPOSITS
Interest expense on deposits is summarized as follows (in thousands)
1995 1994 1993
--------------------------
Transaction deposits $10,881 $ 9,684 $ 8,853
Money market 14,395 12,378 12,398
Savings 2,957 3,522 3,235
Time:
Under $100,000 38,552 27,603 24,681
$100,000 and over 20,265 10,471 9,525
Other 10,689 7,483 6,552
- --------------------------------------------------
Total time 69,506 45,557 40,758
- --------------------------------------------------
Total $97,739 $71,141 $65,244
- --------------------------------------------------
The aggregate amounts of time deposits in denominations of $100,000 or more at
December 31, 1995 and 1994 were $486.2 million and $273.3 million, respectively.
Interest expense on time deposits during 1995 and 1994 was reduced by net
income from interest rate swaps of $868 thousand and $344 thousand,
respectively.
34
(9) OTHER BORROWINGS
Information relating to other borrowings is summarized as follows (dollars in
thousands):
Rate at Maximum
Period-End Daily average end of outstanding at
-------------------
Balance Balance Rate year any month-end
------------------------------------------------------------------
1995:
FUNDS PURCHASED AND
REPURCHASE AGREEMENTS $697,497 $ 894,322 6.03% 5.75% $1,052,369
OTHER 250,309 129,458 6.27 6.03 250,309
- ------------------------------------------------------------------
TOTAL $947,806 $1,023,780 6.06 5.82 1,135,168
- ----------------------------------------------------------------------------------------------------------
1994:
Funds purchased and repurchase
agreements $743,248 $ 605,640 4.46% 5.87% $ 779,789
Other 231,086 98,555 4.61 6.39 237,665
- ------------------------------------------------------------------
Total $974,334 $ 704,195 4.48 5.99 974,334
- ----------------------------------------------------------------------------------------------------------
1993:
Funds purchased and repurchase
agreements $201,294 $ 205,430 3.09% 3.14% $ 321,972
Other 39,263 41,788 3.90 3.33 114,538
- ------------------------------------------------------------------
Total $240,557 $ 247,218 3.22 3.17 361,039
- ----------------------------------------------------------------------------------------------------------
Other borrowings at December 31, 1995 included $228.8 million in
uncollateralized advances from the Federal Home Loan Bank. These advances are
used for funding and consist of $34.0 million in overnight funds bearing
interest of 6.15%, and $194.8 million in term funds bearing interest from 6.08%-
7.50%. Of the term funds, $150 million mature within 60 days, $4.5 million
mature in 1998, $22.9 million mature in 2000, $15.5 million mature in 2002 and
$1.9 million mature in 2005. In addition, other borrowings include $2.5 million
in advances on a line of credit from a commercial bank which bear interest based
on LIBOR and are unsecured. At December 31, 1995, the interest rates were 6.45%-
6.64%, and $12.5 million of the line remained unused. Interest is paid monthly
with principal due no later than May 4, 1996.
Funds purchased generally mature within one to 90 days from the transaction
date. At December 31, 1995, securities sold under agreement to repurchase
totaled $631.9 million with related accrued interest payable of $2.3 million.
Additional information relating to repurchase agreements at December 31, 1995 is
as follows (dollars in thousands):
Carrying Market Repurchase Average
Security Sold/Maturity Value Value Liability Rate
- ---------------------------------------------------------------------
U.S. Treasury Securities:
Overnight $ 32,007 $ 32,277 $ 7,663 5.29%
Term of 30 to 91 days 58,373 58,554 54,191 5.74
- -------------------------------------------------------------
Total Treasury Securities 90,380 90,831 61,854 5.68
- -------------------------------------------------------------
U.S. Agency Securities
Overnight 136,863 135,684 101,523 5.33
Term of up to 30 days 1,826 1,795 111 5.00
Term of 30 to 90 days 503,149 498,722 470,684 5.75
- -------------------------------------------------------------
Total Agency Securities 641,838 636,201 572,318 5.68
- -------------------------------------------------------------
Total $732,218 $727,032 $634,172 5.68
- -------------------------------------------------------------
On April 3, 1995, BOK Financial repaid the $23 million subordinated debenture
issued on December 31, 1992 to Kaiser. The subordinated debenture was scheduled
to mature on April 1, 1999 and to bear an interest rate of nine percent after
March 31, 1995.
35
(10) FEDERAL AND STATE INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
deferred tax assets and liabilities are as follows (in thousands):
DECEMBER 31,
1995 1994
--------------------------
Deferred tax liabilities:
Pension contributions in excess of
book expense $ 2,400 $ 2,100
Other 3,900 2,300
- ------------------------------------------------------------------
Total deferred tax liabilities 6,300 4,400
- ------------------------------------------------------------------
Deferred tax assets:
Loan loss reserve 15,000 14,900
Valuation adjustments 13,800 25,700
Book expense in excess of tax 3,900 3,600
Built-in loss carryforwards - 1,100
Other 3,500 1,900
- ------------------------------------------------------------------
Total deferred tax assets 36,200 47,200
Valuation allowance for deferred tax
assets 28,900 34,500
- ------------------------------------------------------------------
Net deferred tax assets 7,300 12,700
- ------------------------------------------------------------------
Deferred tax assets in excess of
deferred tax liabilities $ 1,000 $ 8,300
- ------------------------------------------------------------------
At December 31, 1995 BOK Financial had consolidated recognized built-in loss
carryforwards for income tax purposes of approximately $1.1 million which expire
in the year 2010. The acquisition of BOk by BOK Financial on June 7, 1991
resulted in a change of ownership, which significantly limits the utilization of
built-in and net operating loss carryforwards. In addition, BOk's former parent
company underwent restructuring transactions during 1986 and 1989. Due to the
complex nature of those transactions and the limited IRS regulations and rulings
in this area, uncertainties remain as to the ability of BOK Financial to
ultimately realize the benefits of these losses. Consequently, and due to the
expiration periods and the timing of the anticipated reversal of built-in
losses, a valuation allowance has been recorded. The five year period, during
which the utilization of currently recognized built-in loses has been limited,
will expire in 1996. Consequently, management anticipates reducing its valuation
allowance by an amount up to $7.7 million during the second quarter of 1996.
The significant components of the provision for income taxes attributable to
continuing operations for BOK Financial are shown below (in thousands).
1995 1994 1993
-------------------------------
Current:
Federal $14,707 $11,367 $10,808
State 2,273 2,332 2,262
- ------------------------------------------------------------
Total current 16,980 13,699 13,070
- ------------------------------------------------------------
Deferred:
Federal (1,871) 789 2,802
State (341) 144 367
- ------------------------------------------------------------
Total deferred (2,212) 933 3,169
- ------------------------------------------------------------
Total income tax $14,768 $14,632 $16,239
- ------------------------------------------------------------
The reconciliations of income attributable to continuing operations
computed at the U.S. federal statutory tax rates to income tax expense are as
follows (dollars in thousands):
1995 1994 1993
--------------------------------
Amount:
Federal statutory tax $22,391 $20,894 $18,949
Tax exempt revenue (3,747) (2,948) (1,558)
Effect of state income taxes,
net of federal benefit 1,932 2,145 2,005
Loss carryforward, benefit
recognized (6,065) (5,345) (3,265)
Utilization of tax credits (1,000) (1,422) (399)
Other, net 1,257 1,308 507
- -----------------------------------------------------------------
Total $14,768 $14,632 $16,239
- -----------------------------------------------------------------
Percent of pretax income:
Federal statutory rate 35% 35% 35%
Tax-exempt revenue (6) (5) (3)
Effect of state income taxes,
net of federal benefit 3 4 4
Loss carryforward, benefit
recognized (9) (9) (6)
Utilization of tax credits (2) (2) (1)
Other, net 2 2 1
- ----------------------------------------------------------------
Total 23% 25% 30%
- ----------------------------------------------------------------
36
(11) EMPLOYEE BENEFITS
BOK Financial sponsors a defined benefit Pension Plan for all employees who
satisfy certain age and service requirements. The following tables present the
Pension Plan's funded status and amounts recognized for the period indicated
(dollars in thousands):
DECEMBER 31,
1995 1994
-----------------------------
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of 1995-$7,970; 1994-$6,420 $(10,142) $(7,758)
----------------------------------------------------------------------------------------
Projected benefit obligation for service rendered to date (10,142) (7,758)
Plan assets at fair value 11,554 8,022
-----------------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation 1,412 264
Unrecognized prior service cost 979 1,038
Unrecognized net loss 3,669 2,931
----------------------------------------------------------------------------------------
Accrued pension asset $ 6,060 $ 4,233
----------------------------------------------------------------------------------------
Discount rate 7.00% 8.00%
----------------------------------------------------------------------------------------
Compensation increase rate 5.25% 5.25%
----------------------------------------------------------------------------------------
1995 1994 1993
----------------------------------
Net pension cost included the following expense (income):
Service cost $ 1,333 $ 1,144 $ 797
Interest cost 582 402 372
Deferred gain (loss) on assets 584 (678) (139)
Actual (return) loss on plan assets (1,506) 86 (456)
Other, net 135 10 10
--------------------------------------------------------------------------------------------------
Net periodic pension cost $ 1,128 $ 964 $ 584
--------------------------------------------------------------------------------------------------
Expected return on assets 9.50% 9.00% 10.00%
--------------------------------------------------------------------------------------------------
Assets of the Pension Plan consist primarily of shares in cash management
funds, common stock and bond funds, and guaranteed investment contract funds.
Benefits are based on the employee's age and length of service.
Employee contributions to the thrift Plan, a defined contribution plan, are
matched by BOK Financial up to 4 percent of base compensation, based upon years
of service. Participants may direct the investment of their accounts in a
variety of options, including BOK Financial Common Stock. Employer contributions
vest over five years. Expenses incurred by BOK Financial for the thrift Plan
totaled $1.5 million, $1.2 million and $928 thousand for 1995, 1994 and 1993,
respectively.
BOK Financial sponsors a defined benefit post-retirement employee medical
plan which pays 50 percent of annual medical insurance premiums for retirees who
meet certain age and service requirements. Assets consist primarily of shares in
a cash management fund. On January 1, 1993, BOK Financial adopted Statement of
Financial Accounting Standards No. 106, "Accounting for Post-retirement
Benefits" ("FAS 106"). In conjunction with the adoption of FAS 106, liability
for the post-retirement plan was limited to current retirees and certain
employees currently age 60 or older.
The following tables present the plan's funded status and amounts recognized
for the periods indicated (dollars in thousands):
1995 1994
--------------------------
Accumulated post-retirement benefit
obligation $(2,696) $(2,218)
Fair value of plan assets 693 591
- -------------------------------------------------------------------
Fund status (2,003) (1,627)
Unrecognized transition asset (264) (296)
Unrecognized net (gain) loss 173 (296)
- -------------------------------------------------------------------
Acrued post-retirement benefit $(2,094) $(2,219)
- -------------------------------------------------------------------
Discount rate 7.00% 8.00%
- -------------------------------------------------------------------
Medical inflation rate 10.00% to 5.00% 10.00% to 5.00%
- -------------------------------------------------------------------
1995 1994
------------------------
Net post-retirement benefits cost includes:
Service cost fair value of plan assets $ 14 $ 10
Interest cost 166 173
Actual return on plan assets (26) (18)
Deferred gain (loss) on assets 6 (29)
Amortization of unrecognized transition
obligation (32) (32)
- -------------------------------------------------------------------------
Net post-retirement benefits cost $ 128 $ 104
- -------------------------------------------------------------------------
Expected return on assets 9.50% 9.00%
- -------------------------------------------------------------------------
37
A 1% increase in the assumed medical inflation rate would increase the
accumulated post-retirement benefit obligation by approximately $189 thousand
and would increase post-retirement benefit cost by $19 thousand.
Under various performance incentive plans, participating employees may be
granted awards based on defined formulas or other criteria. Earnings were
charged $5.3 million in 1995, $5.0 million in 1994 and $6.1 million in 1993 for
such awards.
(12) Executive Benefit Plans
The Board of Directors of BOK Financial has approved various stock option plans.
The number of options awarded and the employees to receive the options are
determine by the Chairman of the Board and the President, subject to approval of
the Board of Directors or a committee thereof.
Options awarded under these plans are subject to vesting requirements.
Generally, one-seventh of the options awarded vest annually and expire three
years after vesting. Under the 1994 Plan, 268,958 options were awarded in 1994,
234,125 options were awarded in 1995 and an aggregate of 312,516 options may be
awarded in 1996. Cancelled options under the 1994 Plan may be reawarded.
The following table presents options outstanding at December 31, 1995 under
these plans:
1994 Plan 1993 Plan 1992 Plan
---------------------------------------------------------------
Number Price Number Price Number Price
---------------------------------------------------------------
Options awarded 503,083 $20.39-23.00 261,881 $22.01 268,167 $13.73
Options exercised - - - - (16,371) 13.73
Options cancelled (15,599) 20.39 (41,848) 22.01 (51,066) 13.73
- -------------------------------------------------------------------------------------
Options outstanding:
Vested 36,896 20.39 63,403 22.01 51,474 13.73
Nonvested 450,588 20.39-23.00 156,630 22.01 149,256 13.73
- -------------------------------------------------------------------------------------
(13) COMMITMENTS AND CONTINGENT LIABILITIES
In the ordinary course of business, BOK Financial and its subsidiaries are
subject to legal actions and complaints. Management believes, based upon the
opinion of counsel, that the actions and liability or loss, if any, resulting
from the final outcomes of the proceedings, will not be material in the
aggregate.
BOk is obligated under a long-term lease for its bank premises located in
downtown Tulsa. The lease term, which began November 1, 1976, is for fifty-seven
years with options to terminate at the end of the thirty-seventh and forty-
seventh years. Annual base rent is $3.1 million. BOk subleases portions of its
space for annual rents of $392 thousand each year through 2000. Net rent expense
on this lease was $2.6 million in 1995, $2.1 million in 1994 and $2.4 million in
1993. Total rent expense for BOK Financial was $6.7 million in 1995, $6.0
million in 1994 and $6.0 million in 1993.
At December 31, 1995, the future minimum lease payments for equipment and
premises under operating leases were as follows: $6.4 million in 1996, $5.8
million in 1997, $5.6 million in 1998, $5.5 million in 1999, $5.1 million in
2000 and a total of $110.7 million thereafter.
BOk and The Williams Companies, Inc. guaranteed 30 percent and 70 percent,
respectively, of the $19.5 million debt, which matures May 15, 2007, and
operating deficit of two parking facilities operated by the Tulsa Parking
Authority. Total expense related to this guarantee was $100 thousand in 1995, $0
in 1994 and $180 thousand in 1993.
The Federal Reserve Bank requires member banks to maintain certain minimum
average cash balances. These balances were approximately $86.0 million for 1995
and $79.3 million for 1994.
At December 31, 1995, BOK financial had deposits totaling $739 million
which are insured by the FDIC's Savings Association Insurance Fund ("SAIF").
These deposits represent earlier acquisitions either from savings associations
or government agencies representing failed savings associations. Premiums on
SAIF insured deposits remained at 23 basis points for 1995. Legislation is
pending in Congress which will require banks and savings associations to pay a
one-time assessment on all SAIF-insured deposits. Estimates of the cost of this
assessment range from 66 basis points to 90 basis points. The ultimate amount
and timing of this assessment is subject to the Federal budget reconciliation
process. Management will accrue for any resulting assessment once it becomes
reasonably estimable.
38
(14) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
BOK Financial is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers and
to manage interest rate risk. Those financial instruments involve, to varying
degrees, elements of credit risk in excess of the amount recognized in BOK
Financial's Consolidated Balance Sheets. Exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the notional
amount of those instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. At December 31, 1995, outstanding commitments
totaled $691.6 million. Since some of the commitments are expected to expire
before being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. BOK Financial uses the same credit policies
in making commitments as it does loans. The amount of collateral obtained, if
deemed necessary, is based on management's credit evaluation of the borrower.
Standby letters of credit are conditional commitments issued to guarantee
the performance of a customer to a third party. Since the credit risk involved
in issuing standby letters of credit is essentially the same as that involved in
extending loan commitments, BOK Financial uses the same credit policies in
evaluating the creditworthiness of the customer. Additionally, BOK financial
uses the same evaluation process in obtaining collateral on standby letters of
credit as it does for loan commitments. At December 31, 1995, outstanding
standby letters of credit totaled $95.4 million.
Commercial letters of credit are used to facilitate customer trade
transactions with the drafts being drawn when the underlying transaction is
consummated. At December 31, 1995, outstanding commercial letters of credit
totaled $6.4 million.
BOK Financial uses interest rate swaps, a form of off-balance-sheet
derivative product, in managing its interest rate risk. These swaps are used to
more closely match the interest paid on certain long-term, fixed rate
certificates of deposit with earning assets. BOK Financial agrees with other
parties to exchange, at specified intervals, the difference between fixed-rate
and floating-rate interest amounts calculated by reference to an agreed-upon
notional amount. At December 31, 1995, the notional amount of BOK Financial's
interest rate swaps totaled $85.2 million with related credit exposure,
represented by the fair value of the contracts, of $4.5 million. During 1995 and
1994, income from the swaps exceeded costs by $868 thousand and $344 thousand,
respectively, which reduced interest expense on deposits. Scheduled repricing
periods for the swaps are as follows (in thousands):
31-90 91-365 Over
days days 1 year Total
------------------------------------------
Pay floating $(45,000) $(40,000) $ - $(85,000)
Receive fixed - - 85,000 85,000
Pay fixed 179 - - 179
Receive floating (179) - - (179)
- -------------------------------------------------------------
Total $(45,000) $(40,000) $85,000 $ -
- -------------------------------------------------------------
Swap contracts with notional amounts of $179 thousand, $63.0 million and
$22.0 million expire in 1996, 1998 and 1999, respectively. The expiration dates
of the swap contracts are designed to match the estimated maturity dates of the
hedged certificates of deposit.
BOK Financial utilized securities forward sales contracts associated with
its mortgage banking activities as described in Note 7.
39
(15) SHAREHOLDERS' EQUITY
PREFERRED STOCK
One billion shares of preferred stock with a par value of $0.00005 per share are
authorized. A single series of 250,000,000 shares designated as Series A
Preferred Stock ("Series A Preferred Stock") is currently issued and
outstanding. The Series A Preferred Stock has no voting rights except as
otherwise provided by Oklahoma corporate law and may be converted into one share
of Common Stock for each 92 shares of Series A Preferred Stock at the option of
the holder. Dividends are cumulative at an annual rate of ten percent of the
$0.06 per share liquidation preference value when declared and are payable in
cash. Aggregate liquidation preference is $15.0 million. During 1995, 1994 and
1993, 69,959 shares, 65,279 shares and 52,422 shares, respectively, of BOK
Financial common stock were issued in payment of dividends on the Series A
Preferred Stock in lieu of cash by mutual agreement of BOK Financial and the
holders of the Series A Preferred Stock. Kaiser owns substantially all Series A
Preferred Stock. These shares were valued at $1.5 million in 1995 and 1994, and
$1.1 million in 1993, based on average market price, as defined, for a 65
business day period preceding declaration.
Prior to its merger with BOK Financial, Citizens had 100,000 shares
authorized and 64,607 shares outstanding of nonvoting preferred stock with a par
value and liquidating preference of $20 per share and annual cumulative
dividends of $2 per share. These shares were redeemed in full and cancelled in
conjunction with Citizens' merger with BOK Financial.
During 1995, 102 nonvoting units in an entity owned by BOk were issued to
various officers of BOk. These units are eligible for an annual, cumulative
distribution of $8 per unit and have a preferred value upon liquidation of $100
per unit.
COMMON STOCK
Common stock consists of 2.5 billion authorized shares, $0.00006 par value
Holders of common shares are entitled to one vote per share at the election of
the Board of Directors and on any question arising at any shareholders' meeting
and to receive dividends when and as declared. No common stock dividends can be
paid unless all accrued dividends on the Series A Preferred Stock have been
paid. The present policy of BOK Financial is to retain earnings for capital and
future growth, and management has no current plans to recommend payment of cash
dividends on common stock. Additionally, regulations restrict the ability of
national banks and bank holding companies to pay dividends.
During 1995, 1994 and 1993, 3% dividends payable in shares of BOK Financial
common stock were declared and paid. The shares issued were valued at $12.8
million, $12.3 million and $12.6 million, respectively, based on the average
closing bid/ask prices on the day preceding declaration.
SUBSIDIARY BANKS
The amounts of dividends which BOK Financial's subsidiary banks can declare and
the amounts of loans the subsidiary banks can extend to affiliates are limited
by various federal and state banking regulations. Generally, dividends declared
during a calendar year are limited to net profits, as defined, for the year plus
retained profits for the preceding two years. The amounts of dividends are
further restricted by minimum capital requirements. Pursuant to the most
restrictive of the regulations at December 31, 1995, BOK Financial's subsidiary
banks could declare dividends up to $29.7 million without prior regulatory
approval. The subsidiary banks declared and paid no dividends in 1995 or 1994,
and $12.2 million in 1993.
Loans to a single affiliate may not exceed 10.0 percent and loans to all
affiliates may not exceed 20.0 percent of unimpaired capital and surplus, as
defined. Additionally, loans to affiliates must be fully secured. As of December
31, 1995 and 1994, these loans totaled $4.6 million and $2.3 million,
respectively.
40
(16) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying values and estimated fair values of
financial instruments as of December 31, 1995 and 1994 (dollars in thousands):
Range of Average Estimated
Carrying Contractual Repricing Discount Fair
Value Yields (in years) Rate Value
------------------------------------------------------------------------
1995:
Cash and cash equivalents $ 311,939 - - - $ 311,939
Securities 1,553,559 - - - 1,556,224
Loans:
Commercial 861,064 4.50-16.22% 0.5 7.29- 9.40% 849,460
Commercial real estate 598,602 6.08-14.70 1.3 9.35-10.07 588,175
Residential mortgage 436,816 3.75-14.87 1.6 7.24- 7.40 439,304
Residential mortgage - held for
sale 72,412 - - - 72,412
Consumer 225,474 5.00-18.90 1.7 7.81-13.50 224,861
- ----------------------------------------------------------------------------------------------------------------
Total loans 2,194,368 2,174,212
Reserve for loan losses (38,287) -
- ----------------------------------------------------------------------------------------------------------------
Net loans 2,156,081 2,174,212
Deposits with no stated maturity 1,537,065 - - - 1,537,065
Time deposits 1,400,644 2.62-10.00 0.7 4.93- 5.73 1,405,765
Other borrowings 947,806 - - - 949,184
- ----------------------------------------------------------------------------------------------------------------
1994:
Cash and cash equivalents $ 309,099 - - - $ 309,099
Securities 1,590,104 - - - 1,519,988
Loans:
Commercial 746,066 4.75-18.00% 1.0 6.60-10.50% 736,163
Commercial real estate 470,292 6.65-14.19 0.7 9.50-10.00 468,004
Residential mortgage 373,389 3.50-14.87 1.2 6.50- 9.50 363,213
Residential mortgage-held for sale 40,909 - - - 40,909
Consumer 213,397 3.50-21.00 1.6 8.95-13.95 212,834
- ----------------------------------------------------------------------------------------------------------------
Total loans 1,844,053 1,821,123
Reserve for loan losses (38,271) -
- ----------------------------------------------------------------------------------------------------------------
Net loans 1,805,782 1,821,123
Deposits with no stated maturity 1,529,947 - - - 1,529,947
Time deposits 1,099,627 2.00-12.17 0.8 2.90- 7.30 1,086,626
Other borrowings 974,334 - - - 973,831
Subordinated debenture 23,000 6.00 0.3 6.00 23,000
- ----------------------------------------------------------------------------------------------------------------
The following methods and assumptions were used in estimating the fair
value of these financial instruments:
CASH AND CASH EQUIVALENTS
The book value reported in the consolidated balance sheet for cash and short-
term instruments approximates those assets' fair values.
SECURITIES
The fair values of securities are based on quoted market prices or dealer
quotes, when available. If quotes are not available, fair values are based on
quoted prices of comparable instruments.
LOANS
The fair value of loans, excluding loans held for sale, are based on discounted
cash flow analyses using interest rates currently being offered for loans with
similar remaining terms to maturity and credit risk, adjusted for the impact of
interest rate floors and ceilings. The fair values of classified loans were
estimated to approximate their carrying values less loan loss reserves allocated
to these loans of $12.7 million and $11.1 million at December 31, 1995 and 1994,
respectively.
The fair values of residential mortgage loans held for sale are based upon
quoted market prices of such loans sold in securitization transactions,
including related unfunded loan commitments and hedging transactions.
41
DEPOSITS
The fair values of time deposits are based on discounted cash flow analyses
using interest rates currently being offered on similar transactions. FAS 107
defines the estimated fair value of deposits with no stated maturity, which
includes demand deposits, transaction deposits, money market deposits and
savings accounts, to equal the amount payable on demand. Although market
premiums paid reflect an additional value for these low cost deposits, FAS 107
prohibits adjusting fair value for the expected benefit of these deposits.
Accordingly, the positive effect of such deposits is not included in this table.
OTHER BORROWINGS AND SUBORDINATED DEBENTURE
The fair values of these instruments are based upon discounted cash flow
analyses using interest rates currently being offered on similar instruments.
OFF-BALANCE-SHEET INSTRUMENTS
The fair values of commercial loan commitments and letters of credit are based
on fees currently charged to enter into similar agreements, taking into account
the remaining terms of the agreements. The fair values of interest rate swaps
are based on pricing models using current assumptions to arrive at replacement
cost. The fair values of these off-balance-sheet instruments were not
significant at December 31, 1995 and 1994. Residential mortgage loan commitments
are included in determining the fair value of the mortgage loans held for sale.
(17) PARENT COMPANY ONLY FINANCIAL STATEMENTS
Summarized financial information for BOK Financial-Parent Company Only follows:
Balance Sheets
(In Thousands) DECEMBER 31,
------------------------
1995 1994
------------------------
ASSETS
Cash and cash equivalents $ 212 $ 2,697
Securities - available for sale 4,208 -
Investment in subsidiaries 302,199 235,751
Other assets 1,761 1,617
----------------------------------------------------------------
Total assets $ 308,380 $240,065
----------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings $ 2,500 $ 500
Other liabilities 4,315 2,663
----------------------------------------------------------------
Total liabilities 6,815 3,163
----------------------------------------------------------------
Preferred stock 23 13
Common stock 1 1
Capital surplus 157,395 142,718
Retained earnings 146,727 111,878
Unrealized net loss on securities
available for sale (2,427) (17,423)
Notes receivable (154) (285)
----------------------------------------------------------------
Total shareholders' equity 301,565 236,902
----------------------------------------------------------------
Total liabilities and shareholders' $ 308,380 $240,065
equity
----------------------------------------------------------------
42
STATEMENTS OF EARNINGS
(IN THOUSANDS)
1995 1994 1993
----------------------------------
Dividends, interest and fees received
from subsidiaries $ 1,460 $ 458 $ 12,337
Other operating revenue 1,241 73 56
- ------------------------------------------------------------------------------
Total revenue 2,701 531 12,393
- ------------------------------------------------------------------------------
Interest expense 273 4 -
Personal expense 407 350 304
Professional fees and services 212 373 153
Other operating expense 250 477 191
- ------------------------------------------------------------------------------
Total expense 1,142 1,204 648
- ------------------------------------------------------------------------------
Income (loss) before taxes, equity in
undistributed income of subsidiaries
and cumulative effect of change in
accounting for income taxes 1,559 (673) 11,745
Federal and state income tax expense
(credit) 1,043 (103) (1,769)
- ------------------------------------------------------------------------------
Income (loss) before equity in
undistributed income of subsidiaries
and cumulative effect of change in
accounting for income taxes 516 (570) 13,514
Equity in undistributed income of
subsidiaries 48,689 45,635 24,388
- ------------------------------------------------------------------------------
Income before cumulative effect of
change in accounting for income taxes 49,205 45,065 37,902
Cumulative effect of change in
accounting for income taxes - - 1,570
- ------------------------------------------------------------------------------
Net income $ 49,205 $ 45,065 $ 39,472
- ------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
1995 1994 1993
----------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 49,205 $ 45,065 $ 39,472
Adjustments to reconcile net income to
net cash provided by operating
activities:
Equity in undistributed income of
subsidiaries (48,689) (45,635) (24,388)
Cumulative effect of change in
accounting for income taxes - - (1,570)
Noncash compensation expense - 257 45
Gain on sale of available for sale
securities (1,213) - -
Change in other assets (144) 1,537 (498)
Change in other liabilities 1,403 2,460 (986)
- ------------------------------------------------------------------------------
Net cash provided by operating
activities 562 3,684 12,075
- ------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of available for
sale securities 13,287 - -
Purchases of available for sale
securities (15,641) - -
Payment to purchase subsidiaries - - (3,880)
Investment in subsidiaries (3,155) (3,000) (5,900)
- ------------------------------------------------------------------------------
Net cash used in investing activities (5,509) (3,000) (9,780)
- ------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term bnorrowings 2,000 500 -
Issuance of preferred, common and
treasury stock, net 331 520 1,207
Payments to dissenting shareholders - (1,707) -
Repurchase of preferred stock - (1,292) -
Dividends on preferred stock - (113) (128)
Payments on notes receivable 131 93 397
- ------------------------------------------------------------------------------
Net cash provided (used) by financing
activities 2,462 (1,999) 1,476
- ------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents (2,485) (1,315) 3,771
Cash and cash equivalents at beginning
of period 2,697 4,012 241
- ------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 212 $ 2,697 $ 4,012
- ------------------------------------------------------------------------------
NET ASSETS ACQUIRED FOR STOCK $ - $ - $ 6,866
- ------------------------------------------------------------------------------
PAYMENT OF DIVIDENDS IN COMMON STOCK 14,346 13,764 13,743
- ------------------------------------------------------------------------------
43
BOK FINANCIAL CORPORATION
ANNUAL FINANCIAL SUMMARY - UNAUDITED
Consolidated Daily Average Balances,
Average Yields and Rates
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 1995
----------------------------------------
Average Revenue/ Yield/
Balance Expense/1/ Rate
----------------------------------------
ASSETS
Taxable securities $1,354,949 $ 83,076 6.13%
Tax-exempt securities 253,969 19,113 7.53
- --------------------------------------------------------------------------------
Total securities 1,608,918 102,189 6.35
- --------------------------------------------------------------------------------
Trading securities 3,672 242 6.59
Funds sold and resell agreements 16,509 996 6.03
Loans/2/ 2,012,574 179,052 8.90
Less reserve for loan losses 38,318
- --------------------------------------------------------------------------------
Loans, net of reserve 1,974,256 179,052 9.07
- --------------------------------------------------------------------------------
Total earning assets 3,603,355 282,479 7.84
- --------------------------------------------------------------------------------
Cash and other assets 420,634
- --------------------------------------------------------------------------------
Total assets $4,023,989
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Transaction deposits $ 389,411 10,881 2.79
Money market deposits 369,183 14,395 3.90
Savings deposits 118,664 2,957 2.49
Time deposits 1,229,769 69,506 5.65
- --------------------------------------------------------------------------------
Total interest-bearing deposits 2,107,027 97,739 4.64
- --------------------------------------------------------------------------------
Other borrowings 1,023,780 62,086 6.06
Subordinated debenture 5,797 352 6.07
- --------------------------------------------------------------------------------
Total interest-bearing liabilities 3,136,604 160,177 5.11
- --------------------------------------------------------------------------------
Demand deposits 574,865
Other liabilities 40,161
Shareholders' equity 272,359
- --------------------------------------------------------------------------------
Total liabilities and shareholders'equity $4,023,989
- --------------------------------------------------------------------------------
TAX-EQUIVALENT NET INTEREST REVENUE 122,302 2.73
TAX-EQUIVALENT NET INTEREST REVENUE TO
EARNING ASSETS 3.39
Tax-equivalent adjustment/1/ 7,038
- --------------------------------------------------------------------------------
NET INTEREST REVENUE 115,264
Provision for loan losses 231
Other operating revenue 91,146
Other operating expense 142,206
- --------------------------------------------------------------------------------
INCOME BEFORE TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING FOR 63,973
INCOME TAXES
Federal and state income tax 14,768
- --------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF 49,205
CHANGE IN ACCOUNTING FOR INCOME TAXES
Cumulative effect of change in -
accounting for income taxes
- --------------------------------------------------------------------------------
NET INCOME $ 49,205
- --------------------------------------------------------------------------------
EARNINGS PER AVERAGE COMMON SHARE
EQUIVALENT:
Income before cumulative effect of change in
accounting for income taxes
Primary $ 2.33
- --------------------------------------------------------------------------------
Fully diluted 2.12
- --------------------------------------------------------------------------------
Net Income
Primary 2.33
- --------------------------------------------------------------------------------
Fully diluted 2.12
- ------------------------------------------------------------------------------ --
/1/ Tax equivalent at the statutory federal and state rates for the periods
presented. The taxable equivalent adjustments shown are for comparative
purposes.
/2/ The loan averages included loans on which the accrual of interest has been
discontinued and are stated net of unearned income.
44
1994 1993
- -----------------------------------------------------------------------------------------
Average Revenue/ Yield/ Average Revenue/ Yield/
Balance Expense/1/ Rate Balance Expense/1/ Rate
- ---------------------------------------------- ----------------------------------
$1,249,791 $ 73,157 5.85% $ 986,349 $ 57,490 5.83%
200,099 15,369 7.68 99,420 7,879 7.92
- -----------------------------------------------------------------------------------------
1,449,890 88,526 6.11 1,085,769 65,369 6.02
- -----------------------------------------------------------------------------------------
3,836 226 5.89 4,517 243 5.38
42,897 2,008 4.68 50,137 1,793 3.58
1,718,508 138,415 8.05 1,557,433 117,085 7.52
37,997 38,084
- -----------------------------------------------------------------------------------------
1,680,511 138,415 8.24 1,519,349 117,085 7.71
- -----------------------------------------------------------------------------------------
3,177,134 229,175 7.21 2,659,772 184,490 6.94
- -----------------------------------------------------------------------------------------
374,239 333,436
- -----------------------------------------------------------------------------------------
$3,551,373 $2,993,208
- -----------------------------------------------------------------------------------------
$ 395,188 9,684 2.45 $ 353,895 8,853 2.50
412,233 12,378 3.00 434,876 12,398 2.85
133,609 3,522 2.64 124,208 3,235 2.60
1,072,011 45,557 4.25 1,062,561 40,758 3.84
- -----------------------------------------------------------------------------------------
2,013,041 71,141 3.53 1,975,540 65,244 3.30
- -----------------------------------------------------------------------------------------
704,195 31,534 4.48 247,218 7,962 3.22
23,000 1,380 6.00 23,000 1,380 6.00
- -----------------------------------------------------------------------------------------
2,740,236 104,055 3.80 2,245,758 74,586 3.32
- -----------------------------------------------------------------------------------------
541,144 522,136
43,792 36,468
226,201 188,846
- -----------------------------------------------------------------------------------------
$3,551,373 $2,993,208
- -----------------------------------------------------------------------------------------
125,120 3.41 109,904 3.62
3.94 4.13
6,117 3,136
- -----------------------------------------------------------------------------------------
119,003 106,768
195 3,376
74,364 76,610
133,475 125,861
- -----------------------------------------------------------------------------------------
59,697 54,141
14,632 16,239
- -----------------------------------------------------------------------------------------
45,065 37,902
- 1,570
- -----------------------------------------------------------------------------------------
$ 45,065 $ 39,472
- -----------------------------------------------------------------------------------------
$2.12 $1.80
1.93 1.63
- -----------------------------------------------------------------------------------------
2.12 1.88
- -----------------------------------------------------------------------------------------
1.93 1.70
- -----------------------------------------------------------------------------------------
45
QUARTERLY FINANCIAL SUMMARY - UNAUDITED
Consolidated Daily Average Balances,
Average Yields and Rates
(Dollars in Thousands Except Per Share Data)
For Three Months Ended
-------------------------------------------------------------------------
December 31, 1995 September 30, 1995
----------------------------------- --------------------------------
Average Revenue/ Yield/ Average Revenue/ Yield/
Balance Expense/1/ Rate Balance Expense/1/ Rate
-------------------------------------------------------------------------
ASSETS
Taxable securities $1,285,158 $19,337 5.97% $1,336,474 $20,243 6.01%
Tax-exempt securities 256,599 4,824 7.46 255,688 4,798 7.44
- --------------------------------------------------------------------------------------------------------------------------------
Total securities 1,541,757 24,161 6.22 1,592,162 25,041 6.24
- --------------------------------------------------------------------------------------------------------------------------------
Trading securities 3,787 72 7.54 3,323 51 6.09
Funds sold and resell agreements 19,197 288 5.95 9,826 149 6.02
Loans/2/ 2,145,558 47,838 8.85 2,073,088 46,216 8.84
Less reserve for loan losses 38,378 38,372
- --------------------------------------------------------------------------------------------------------------------------------
Loans, net of reserve 2,107,180 47,838 9.01 2,034,716 46,216 9.01
- --------------------------------------------------------------------------------------------------------------------------------
Total earning assets 3,671,921 72,359 7.82 3,640,027 71,457 7.79
- --------------------------------------------------------------------------------------------------------------------------------
Cash and other assets 431,982 418,656
- --------------------------------------------------------------------------------------------------------------------------------
Total assets $4,103,903 $4,058,683
- --------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Transaction deposits $ 385,302 2,714 2.79 $ 387,039 2,713 2.78
Money market deposits 374,618 3,891 4.12 378,298 3,802 3.99
Savings deposits 106,633 654 2.43 115,312 710 2.44
Time deposits 1,338,106 19,416 5.76 1,208,924 17,454 5.73
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 2,204,659 26,675 4.80 2,089,573 24,679 4.69
- --------------------------------------------------------------------------------------------------------------------------------
Other borrowings 973,914 14,457 5.89 1,060,864 15,952 5.97
Subordinated debenture - - - - - -
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 3,178,573 41,132 5.13 3,150,437 40,631 5.12
- --------------------------------------------------------------------------------------------------------------------------------
Demand deposits 584,748 586,340
Other liabilities 43,465 39,746
Shareholders' equity 297,117 282,160
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $4,103,903 $4,058,683
- --------------------------------------------------------------------------------------------------------------------------------
TAX-EQUIVALENT NET INTEREST REVENUE/1/ 31,227 2.69 30,826 2.67
TAX-EQUIVALENT NET INTEREST REVENUE/1/ TO EARNING ASSETS 3.37 3.36
Tax-equivalent adjustment/1/ 1,780 1,771
- --------------------------------------------------------------------------------------------------------------------------------
NET INTEREST REVENUE 29,447 29,055
Provision for loan losses 176 15
Other operating revenue 23,951 23,185
Other operating expense 36,852 35,682
- --------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE TAXES 16,370 16,543
Federal and state income tax 3,707 4,050
- --------------------------------------------------------------------------------------------------------------------------------
NET INCOME $12,663 $12,493
- --------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER AVERAGE COMMON SHARE EQUIVALENT:
NET INCOME
Primary .60 .59
- --------------------------------------------------------------------------------------------------------------------------------
Fully diluted .54 .54
- --------------------------------------------------------------------------------------------------------------------------------
/1/ Tax equivalent at the statutory federal and state rates for the periods
presented. The taxable equivalent adjustments shown are for comparative
purposes.
/ 2/ The loan averages included loans on which the accrual of interest has been
discontinued and are stated net of unearned income.
46
For Three Months Ended
- ----------------------------------------------------------------------------------------------------------------
June 30, 1995 March 31, 1995 December 31, 1994
- -------------------------------- ------------------------------------ ----------------------------------
Average Revenue/ Yield/ Average Revenue/ Yield/ Average Revenue/ Yield/
Balance Expense/1/ Rate Balance Expense/1/ Rate Balance Expense/1/ Rate
- ----------------------------------------------------------------------------------------------------------------
$1,425,922 $21,905 6.16% $1,373,411 $21,591 6.38% $1,290,165 $19,485 5.99%
253,770 4,799 7.59 249,725 4,692 7.62 234,875 4,515 7.63
- ----------------------------------------------------------------------------------------------------------------
1,679,692 26,704 6.38 1,623,136 26,283 6.57 1,525,040 24,000 6.24
- ----------------------------------------------------------------------------------------------------------------
4,565 72 6.33 3,010 47 6.33 2,379 37 6.17
13,670 213 6.25 23,463 346 5.98 19,466 279 5.69
1,958,467 43,999 9.01 1,869,484 40,999 8.89 1,827,779 38,855 8.43
38,218 38,302 38,477
- ----------------------------------------------------------------------------------------------------------------
1,920,249 43,999 9.19 1,831,182 40,999 9.08 1,789,302 38,855 8.62
- ----------------------------------------------------------------------------------------------------------------
3,618,176 70,988 7.87 3,480,791 67,675 7.88 3,336,187 63,171 7.51
- ----------------------------------------------------------------------------------------------------------------
424,687 406,957 407,916
- ----------------------------------------------------------------------------------------------------------------
$4,042,863 $3,887,748 $3,744,103
- ----------------------------------------------------------------------------------------------------------------
$ 393,141 2,739 2.79 $ 392,266 2,715 2.81 $ 400,393 2,627 2.60
362,817 3,515 3.89 360,745 3,187 3.58 393,074 3,283 3.31
123,169 738 2.40 129,834 855 2.67 135,765 942 2.75
1,193,816 16,997 5.71 1,176,686 15,639 5.39 1,082,683 12,953 4.75
- ----------------------------------------------------------------------------------------------------------------
2,072,943 23,989 4.64 2,059,531 22,396 4.41 2,011,915 19,805 3.91
- ----------------------------------------------------------------------------------------------------------------
1,090,359 16,868 6.21 969,528 14,808 6.19 860,298 11,774 5.43
506 12 9.00 23,000 341 6.00 23,000 346 6.00
- ----------------------------------------------------------------------------------------------------------------
3,163,808 40,869 5.18 3,052,059 37,545 4.99 2,895,213 31,925 4.37
- ----------------------------------------------------------------------------------------------------------------
576,761 551,114 566,149
38,269 39,118 44,766
264,025 245,457 237,975
- ----------------------------------------------------------------------------------------------------------------
$4,042,863 $3,887,748 $3,744,103
- ----------------------------------------------------------------------------------------------------------------
30,119 2.69 30,130 2.89 31,246 3.14
3.34 3.51 3.72
1,760 1,727 1,797
- ----------------------------------------------------------------------------------------------------------------
28,359 28,403 29,449
40 - 135
21,857 22,153 20,072
34,567 35,105 35,022
- ----------------------------------------------------------------------------------------------------------------
15,609 15,451 14,364
3,527 3,484 2,626
- ----------------------------------------------------------------------------------------------------------------
$12,082 $11,967 $11,738
- ----------------------------------------------------------------------------------------------------------------
.57 .57 .55
- ----------------------------------------------------------------------------------------------------------------
.52 .52 .50
- ----------------------------------------------------------------------------------------------------------------
47
BOK FINANCIAL CORPORATION
1995 ANNUAL REPORT
APPENDIX A
==========================================================================================
Earnings Per Share
Graph I
For Year Ended December 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Fully diluted earnings
per share $2.12 $1.93 $1.70 $1.33 $0.88
==========================================================================================
Funding
Graph II
For Year Ended December 31,
(Dollars in thousands)
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Deposits $2,937,709 2,629,574 2,610,927 2,588,570 2,054,172
Borrowed Funds 947,806 974,334 240,557 157,992 155,523
Capital and
subordinated debt 301,565 259,902 236,943 185,331 127,873
Other 34,838 34,466 40,614 33,438 34,792
---------- ---------- ---------- ---------- ----------
Total Funding $4,221,918 $3,898,276 $3,129,041 $2,965,331 $2,372,360
========== ========== ========== ========== ==========
==========================================================================================
Loans
Graph III
For Year Ended December 31,
(Dollars in thousands)
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Commercial $ 861,064 $ 746,066 $ 692,536 $ 681,004 $ 584,873
Real Estate 1,107,830 884,590 830,723 665,961 563,721
Consumer 225,474 213,397 155,296 133,279 97,516
---------- ---------- ---------- ---------- ----------
$2,194,368 $1,844,053 $1,678,555 $1,480,244 $1,246,110
========== ========== ========== ========== ==========
==========================================================================================
==========================================================================================
Commercial Loans
Graph IV
For Year Ended December 31,
(Dollars in thousands)
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Energy $159,887 $162,767 $161,273 $137,619 $103,679
Wholesale/retail 143,941 95,021 81,207 88,537 84,037
Agriculture 86,733 82,527 69,315 61,186 62,204
Manufacturing 136,701 106,104 99,464 89,015 55,870
Other 333,802 299,647 281,277 304,647 279,083
-------- -------- -------- -------- --------
$861,064 $746,066 $692,536 $681,004 $584,873
======== ======== ======== ======== ========
==========================================================================================
Real Estate Loans
Graph V
For Year Ended December 31,
(Dollars in thousands)
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Commercial Real
Estate $ 450,385 $363,600 $293,122 $292,768 $228,116
Single Family
Residential 436,816 373,389 254,505 213,201 168,151
Construction & Land
Development 148,217 106,692 93,310 81,022 107,016
Loans Held for Sale 72,412 40,909 189,786 78,970 60,438
---------- -------- -------- -------- --------
$1,107,830 $884,590 $830,723 $665,961 $563,721
========== ======== ======== ======== ========
==========================================================================================
Other Operating Revenue
Graph VI
For Year Ended December 31,
(Dollars in thousands)
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Deposit fees & service
charges $21,152 $20,698 $20,825 $17,704 $14,451
Trust fees and commissions 19,363 17,117 16,824 15,007 13,568
Mortgage banking revenue 20,336 15,868 12,564 11,895 8,186
Other 30,295 20,681 26,397 18,637 16,393
------- ------- ------- ------- -------
Total Operating Revenue $91,146 $74,364 $76,610 $63,243 $52,598
======= ======= ======= ======= =======
==========================================================================================
SHAREHOLDER INFORMATION
BOK Financial is a bank holding company providing financial and related
services to individuals and businesses. It is primarily engaged in commercial
and consumer banking through its two banking subsidiaries. In conducting their
businesses, the banks receive deposits, make loans, provide trust, investment
and corporate services, operate the TransFund interchange of automated teller
machines and generally engage in all aspects of commercial and consumer banking.
CORPORATE HEADQUARTERS LEGAL COUNSEL
Bank of Oklahoma Tower Frederic Dorwart, Lawyers
P.O. Box 2300 Old City Hall
Tulsa, Oklahoma 74192 124 E. Fourth St.
(918) 588-6000 Tulsa, Oklahoma 74103-5010
(918) 583-9922
TRANSFER AGENT AND REGISTRAR
Bank of Oklahoma, N.A. COMMON SHARES: Traded Over the Counter,
Stock Transfer Department NASDAQ Symbol: BOKF
P.O. Box 2300
Tulsa, Oklahoma 74192 MARKET MAKERS:
Herzog, Heine, Geduld, Inc.
INDEPENDENT AUDITORS: Pauli and Company
Ernst & Young LLP Southwest Securities, Inc.
Bank of Oklahoma Tower Sanders Morris Mundy, Inc.
Tulsa, Oklahoma 74172
(918) 560-3600
Copies of BOK Financial Corporation's Annual Report to Shareholders,
Quarterly Reports and Form 10-K to the Securities and Exchange Commission are
available without charge upon written request. Analysts, shareholders and other
investors seeking financial information about BOK Financial Corporation are
invited to contact James A. White, Executive Vice President & Chief Financial
Officer, (918) 588-6752. News media and others seeking general information
should contact Becky J. Frank, Vice President, Public Relations manager, (918)
588-6831.
48
DIRECTORS
BOK Financial Corporation
- --------------------------------------------------------------------------------
GEORGE B. KAISER GLENN A. COX ROBERT J. LAFORTUNE
Chairman of the Board Retired President and COO Personal Investments
Bank of Oklahoma, N.A. Phillips Petroleum Company
STANLEY A. LYBARGER DR. ROBERT H. DONALDSON PHILIP C. LAUINGER, JR.
President and CEO President, The University of Tulsa Chairman
Bank of Oklahoma, N.A. Lauinger Publishing Company
KEITH E. BAILEY WILLIAM E. DURRETT ROBERT L. PARKER, SR.
Chairman, President and CEO Chairman, President and CEO Chairman, Parker Drilling Company
The Williams Companies American Fidelity Corp.
JAMES E. BARNES JAMES O. GOODWIN JAMES A. ROBINSON
Chairman and CEO, MAPCO, Inc. CEO Personal Investments
The Oklahoma Eagle Publishing Co.
SHARON J. BELL V. BURNS HARGIS L. FRANCIS ROONEY, III
Managing Partner, Rogers and Bell Attorney, McAfee & Taft Chairman and CEO
Manhattan Construction Company
LARRY W. BRUMMETT THOMAS J. HUGHES, III ROBERT L. ZEMANEK
Chairman, President and CEO, President and CEO President and CEO
ONEOK Inc. Hughes Lumber Company Public Service Co. of Oklahoma
WILLIAM B. CLEARY E. CAREY JOULLIAN, IV
Manager, Cleary Exploration L.L.C. President, Mustang Fuel Corporation
Bank of Oklahoma, N.A.
- --------------------------------------------------------------------------------
GEORGE B. KAISER RALPH S. CUNNINGHAM THOMAS J. HUGHES, III
Chairman of the Board President and CEO, Citgo Petroleum President and CEO
Bank of Oklahoma, N.A. Hughes Lumber Company
STANLEY A. LYBARGER NANCY T. DAVIES E. CAREY JOULLIAN, IV
President and CEO Community Leader President, Mustang Fuel Corporation
Bank of Oklahoma, N.A.
W. WAYNE ALLEN DR. ROBERT H. DONALDSON FRANK A. MCPHERSON
Chairman and CEO President, The University of Tulsa Chairman and CEO
Phillips Petroleum Co. Kerr-McGee Oil Corporation
KEITH E. BAILEY JAMES O. GOODWIN L. FRANCIS ROONEY, III
Chairman, President and CEO CEO Chairman and CEO
The Williams Companies The Oklahoma Eagle Publishing Co. Manhattan Construction Company
LARRY W. BRUMMETT D. JOSEPH GRAHAM JAMES A. WHITE
Chairman, President and CEO, Vice President and CFO Executive Vice President and CFO
ONEOK Inc. Kaiser-Francis Oil Co. Bank of Oklahoma, N.A.
WILLIAM B. CLEARY V. BURNS HARGIS ROBERT L. ZEMANEK
Manager, Cleary Exploration L.L.C. Attorney, McAfee & Taft President and CEO
Public Service Co. of Oklahoma
GLENN A. COX EUGENE A. HARRIS
Retired President and COO Executive Vice President
Phillips Petroleum Company Bank of Oklahoma, N.A.
49
OPERATING SUBSIDIARIES
Bank of Oklahoma, N.A. Citizens Bank of Northwest Arkansas, N.A.
- ---------------------------------------------------- -----------------------------------------
TULSA OKLAHOMA CITY FAYETTEVILLE
- ----- ------------- ------------
BANK OF OKLAHOMA TOWER BANK OF OKLAHOMA PLAZA 3500 N. College
One Williams Center Robinson at Robt. S. Kerr (501) 521-8000
(918) 588-6000 (405) 272-2450
Subsidiaries of Bank of Oklahoma, N.A.
- --------------------------------------------------------------------------------
BANCOKLAHOMA TRUST COMPANY BANCOKLAHOMA MORTGAGE CORP.
TULSA OKLAHOMA CITY TULSA SAND SPRINGS
- ----- ------------- ----- ------------
BANK OF OKLAHOMA TOWER 6307 WATERFORD BLVD. COPPER OAKS 401 E. Broadway
One Williams Center, 10th Floor (405) 879-8100 7060 S. Yale (918) 241-8000
(918) 588-6437 (918) 488-7140
ALLIANCE TRUST COMPANY BANK OF OKLAHOMA PLAZA PINE AND LEWIS OKLAHOMA CITY
-------------
2009 Independence Dr. 201 Robert S. Kerr, 4th Floor 1604 N. Lewis 5015 N. Pennsylvania
Sherman, Texas (405) 272-2459 595-3000 (405) 879-8700
(903) 813-5100
4825 LBJ Freeway, Suite 632 SOUTHWEST TRUST COMPANY OWASSO
------
Dallas, Texas 6307 Waterford Blvd. 413 E. 2nd Ave.
(214) 490-8591 Oklahoma City (918) 588-8650
(405) 879-8100
BOSC, INC
3045 S. Harvard
Tulsa
(918) 746-5720
Major Customer Service Offices
- --------------------------------------------------------------------------------
BUSINESS BANKING CENTERS PRIVATE FINANCIAL SERVICES
TULSA OAKLAHOMA CITY TULSA OKLAHOMA CITY
- ----- --------------- ----------------- --------------
BROOKSIDE BANKING CENTER NORTHWEST BANKING CENTER MIDTOWN AT LEWIS CENTER NORTHWEST BANKING CENTER
3237 S. Peoria 3535 N.W. 58th, 2nd Floor 2021 S. Lewis, 3535 N. W. 58th
(918) 746-7400 (405) 951-5400 (918) 748-7283 (405) 272-2215
COMMERCIAL DOWNTOWN AT WATERFORD
METROPOLITAN, NATIONAL, ENERGY & REAL ESTATE OFFICES 320 BOSTON CENTER 6307 Waterford Blvd., Ste. 100
320 S. Boston (405) 879-8100
(918) 588-6214
TULSA OKLAHOMA CITY ENID
- ----- ------------- ----
BANK OF OKLAHOMA TOWER BANK OF OKLAHOMA PLAZA BROOKSIDE BUSINESS CENTER 2308 N. Van Buren
1 Williams Center Robinson at Robt. S. Kerr 3237 S. Peoria (405) 548-8523
(918) 588-6000 (405) 272-2000 (918) 743-7418
CONSUMER BANKING 61ST & YALE
Opening Spring 1996
TULSA OKLAHOMA CITY BARTLESVILLE
- ----- ------------- -------------
BANK OF OKLAHOMA TOWER BANK OF OKLAHOMA PLAZA 3815 S.E. Frank Phillips Blvd.
1 Williams Center Robinson at Robt. S. Kerr (918) 335-5316
(918) 588-6010 (405) 272-2548
BANCOKLAHOMA INVESTMENT CENTER
TULSA
- -----
RANCH ACRES Investment Center Financial
3045 S. Harvard, Suite 101 Consultants are located in all
(918) 746-5770 Consumer, Community and
Private Financial Services
locations statewide.
50
BANK OF OKLAHOMA, N.A. LOCATIONS
Oklahoma City Area Locations Tulsa Area Locations
- ---------------------------------------------------- --------------------------------------------------------------
OKLAHOMA CITY PLAZA VILLAGE TULSA DOWNTOWN CITY PLAZA
201 Robt S. Kerr 9300 N. Pennsylvania BANKING CENTER 5330 E. 31st
One Williams Center
DOWNTOWN EXPRESS BANK WINDSOR HILLS DOWNTOWN AUTOBANK LEWIS CENTER
4th & Robinson 2601 N. Meridian 2nd & Denver 2021 S. Lewis
ALBERTSON'S, BRITTON & MAY DEL CITY 320 BOSTON CENTER PINE & LEWIS
4324 S. E. 44th 320 S. Boston
ALBERTSON'S, MACARTHUR EDMOND, BROADWAY 31ST & GARNETT RANCH ACRES
AND NW EXPRESSWAY 1515 S. Broadway 3045 S. Harvard
CANDLEWOOD MIDWEST CITY 61ST & YALE - SOUTHROADS
6517 N.W. Expressway 1500 S. Midwest Blvd. Opening Spring 1996 4901 E. 41st
NICHOLS HILLS AUTOBANK MIDWEST CITY, AIR DEPOT 71ST & SHERIDAN SOUTHWEST TULSA
7600 N. Western 1201 S. Air Depot Blvd. 4544 S. 33rd W. Ave.
NORTHWEST BANKING CENTER ALBERTSON'S, I-35 & 101ST & SHERIDAN BIXBY
3535 N. W. 58th ROBINSON, NORMAN 11709 S. Memorial
PENN TOWER NORMAN-MIDTOWN ALBERTSON'S, 51ST & HARVARD BROKEN ARROW, ALBERTSON'S,
50 Penn Place 707 W. Main 101ST & ELM
QUAIL CREEK NORMAN-WEST ALBERTSON'S, 51ST & MEMORIAL BROKEN ARROW, ASPEN CREEK
11300 N. May Ave. 3550 W. Main 2100 W. Houston
SOUTH OKC YUKON ALBERTSON'S, 71ST & GARNETT BROKEN ARROW,
7701 S. Western 1100 S. Garth Brooks Blvd. ELM & KENOSHA
903 W. Kenosha
ALBERTSON'S, 81ST & YALE SAND SPRINGS
401 E. Broadway
ALBERTSON'S, 101ST & MEMORIAL
BROOKSIDE
3237 S. Peoria
Community Locations
- --------------------------------------------------------------------------------
BARTLESVILLE GROVE MCALESTER NEWKIRK
- ------------ ----- --------- -------
MAIN BANK 201 S. Main One E. Choctaw 110 S. Main
3815 S. E. Frank Phillips Blvd.
ENID MUSKOGEE PONCA CITY
---- -------- ----------
DOWNTOWN NORTHWEST DOWNTOWN 2005 N. 14th St.
5th & Keeler 2308 N. Van Buren 325 W. Broadway
WASHINGTON PARK MALL SOUTH EASTSIDE
132 Washington Park Mall 2021 W. Owen K. Garriott 2520 Chandler Rd.
BOK IN WAL-MART EUFAULA WESTSIDE
-------
4000 Green Country Road 219 S. Main 300 N. 32nd St.
CITIZENS BANK OF NORTHWEST ARKANSAS, N.A. LOCATIONS
FAYETTEVILLE - MAIN BANK FAYETTEVILLE - EASTSIDE FAYETTEVILLE - DOWNTOWN ROGERS
- ------------ ------------ ------------
3500 N. College 2025 N. Crossover Road 11 N. College 2000 W. Walnut
51
EXECUTIVE OFFICERS
GEORGE B. KAISER* MARK W. FUNKE Community Banking BancOklahoma Mortgage Corp.
Chairman of the Board Executive Vice President ----------------- --------------------------
Chief Operating Officer JOHN W. ANDERSON DAVID L. LAUGHLIN
Oklahoma City President, Bartlesville President
STANLEY A. LYBARGER* EUGENE A. HARRIS DOUGLAS W. DIXON BancOklahoma Trust Company
President, Executive Vice President President, Grove --------------------------
Chief Executive Officer Commercial Banking H. JAMES HOLLOMAN
President
WAYNE D. STONE* JOHN J. MAINTZ DAVID P. JONES Alliance Trust Company, N.A.
President, Bank of Oklahoma Senior Vice President President, Muskogee ----------------------------
Oklahoma City Regional Office Credit Administration JAMES W. BARNES
President
JAMES E. WHITE* H. JAMES HOLLOMAN J. BLAKE MOFFATT PHILIP S. MCKINZIE
Executive Vice President Executive Vice President President, Sands Springs Executive Vice President
Chief Financial Officer Trust Division Sherman, Texas
FREDERIC DORWART* NORMAN W. SMITH J. MICHAEL STUART
Secretary Executive Vice President President, Enid
Consumer Banking
-----------
LOWELL E. FAULKENBERRY* GREGORY K. SYMONS JOHN J. ROWNAK, JR.
Senior Vice President Executive Vice President President and Chief
Auditor Services Executive Officer
Citizens Bank of
Northwest Arkansas, N.A.**
JOHN C. MORROW* CHARLES D. WILLIAMSON
Senior Vice President Executive Vice President
Controller, Financial Capital Markets
Accounting
Senior Vice Presidents
JAMES W. BARNES JAMES R. DICKSON JAMES L. HUNTZINGER DAVID A. RALSTON
Trust Division Trust Division Trust Division Commercial Real Estate
BARRY L. BELL JAMES A. DIETZ RONALD E. LEFFLER JOHN M. ROBINSON
BancOklahoma Mortgage Credit Administration Consumer Banking Commercial Banking Center
STEVEN G. BRADSHAW WADE EDMUNDSON VANE T. LUCAS JOE L. RODANSKI
Investment Center Special Industry Group Marketing Trust Division
MICHAEL L. BRISTLE BARBARA L. EIKNER JAMES S. MARSHALL JOANN G. SCHAUB
Bank Operations Bank Operations BancOklahoma Mortgage Trust Division
ROBERT W. CARROLL ELLEN D. FLEMING MARC C. MAUN DAVID A. SHARPE
Legal Trust Division Acquisitions Electronic Banking
WILLIAM J. CLUNE DOUG FULLER PAUL D. MESMER CARL L. SHORTT, JR.
Agriculture Commercial Banking Center Special Assets Trust Division
CHARLES E. COTTER GARELD F. GILL STEPHEN E. NELL JAMES F. ULRICH
Special Assets Information Services Controller Human Resources
Management Accounting
JAMES T. CRAWFORD II MARSHALL K. GRANT STEPHEN R. PATTISON NANCY E. UTTER
Private Financial Services BancOklahoma Mortgage Corporate Banking Consumer Credit Administration
TERRY L. CROLL LAWRENCE B. HALKA PATRICK E. PIPER JERRY M. WILLIAMS
Treasury Services Trust Division Consumer Banking Trust Division
BRETT A. DEAN RICHARD C. HAUGLAND H. MATT WILSON
Capital Markets Muskogee Commercial Banking
* BOK Financial and Bank of Oklahoma, N.A. officers
** wholly-owned subsidiary of BOK Financial
52
BANK OF
OKLAHOMA, N.A.
Bank of Oklahoma Tower
P.O. Box 2300
Tulsa, OK 74192
(918) 588-6000
CITIZENS BANK
of Northwest Arkansas, N.A.
P.O. Box 1407
Fayetteville, AR 72703
(501) 521-8086